SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
TAGIT-IT PACIFIC, INC.
- -------------------------------------------------------------------------------
(Name of Registrant)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date Filed:
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TAG-IT PACIFIC, INC.
-----------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------------------------
TIME.................................... 10:00 a.m. Pacific Daylight Time on
June 15, 2001
PLACE................................... Tag-It, Pacific, Inc.'s Corporate
Headquarters at 21900 Burbank
Boulevard, Suite 270, Woodland
Hills, California 91367.
ITEMS OF BUSINESS....................... (1) To elect two Class I members of
the Board of Directors for
three-year terms. The persons
nominated by our Board of Directors
(Messrs. Kevin Bermeister and Brent
Cohen) are described in the
accompanying Proxy Statement.
(2) To approve an amendment to the
Company's 1997 Stock Plan to
increase the maximum number of
shares of Common stock that may be
issued pursuant to awards granted
under the plan from 1,777,500
shares to 2,077,500 shares; and
(3) To transact such other business
as may properly come before the
Annual Meeting and any adjournment
or postponement.
RECORD DATE............................. You can vote if you were a
stockholder of the Company at the
close of business on April 27, 2001.
PROXY VOTING............................ All stockholders are cordially
invited to attend the Annual Meeting in
person. However, to ensure your
representation at the Annual Meeting,
you are urged to vote promptly by
signing and returning the enclosed
Proxy card. IF YOUR SHARES ARE HELD IN
STREET NAME, YOU MUST OBTAIN A PROXY,
EXECUTED IN YOUR FAVOR, FROM THE
HOLDER OF RECORD IN ORDER TO BE
ABLE TO VOTE AT THE ANNUAL MEETING.
Woodland Hills, California
May __, 2001
Ronda Sallmen
CHIEF FINANCIAL OFFICER
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS
PROMPTLY AS POSSIBLE. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN
SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD
BE COMPLETED AND RETURNED.
Page 1
TAG-IT PACIFIC, INC.
21900 BURBANK BOULEVARD, SUITE 270,
WOODLAND HILLS, CALIFORNIA 91367
PROXY STATEMENT
- -------------------------------------------------------------------------------
These Proxy materials are delivered in connection with the solicitation by
the Board of Directors of Tag-It Pacific, Inc., a Delaware corporation
("Tag-It," the "Company", "we", or "us"), of Proxies to be voted at our 2001
Annual Meeting of stockholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of stockholders on June 15,
2001, beginning at 10.00 a.m. Pacific Daylight Time. The meeting will be held at
the Company's corporate headquarters at 21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367.
STOCKHOLDERS ENTITLED TO VOTE.
Holders of Tag-It Common stock at the close of business on April 27, 2001
are entitled to receive this notice and to vote their shares at the Annual
Meeting. Common stock is the only outstanding class of securities of the Company
entitled to vote at the Annual Meeting. As of April 27, 2001, there were
8,003,244 shares of common stock outstanding.
PROXIES.
Your vote is important. If your shares are registered in your name, you are
a share owner of record. If your shares are in the name of your broker or bank,
your shares are held in street name. We encourage you to vote by Proxy so that
your shares will be represented and voted at the meeting even if you cannot
attend. All share owners can vote by written Proxy card. Your submitting the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE MEETING. If you are a share owner of record, you may
revoke your Proxy at any time before the meeting either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly executed Proxies received prior to
the Annual Meeting, and not revoked, will be voted at the Annual Meeting in
accordance with the instructions indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board of Directors.
QUORUM.
The presence, in person or by Proxy, of a majority of the votes entitled to
be cast by the stockholders entitled to vote at the Annual Meeting is necessary
to constitute a quorum. Abstentions and broker non-votes will be included in the
number of shares present at the Annual Meeting for determining the presence of a
quorum.
VOTING.
Each share of Tag-It common stock is entitled to one vote on each matter
properly brought before the meeting. Abstentions will be counted toward the
tabulation of votes cast on proposals submitted to stockholders and will have
the same effect as negative votes, while broker non-votes will not be counted as
votes cast for or against such matters.
ELECTION OF DIRECTORS.
The two nominees for Class I director receiving the highest number of votes
at the Annual Meeting will be elected. If any nominee is unable or unwilling to
serve as a director at the time of the Annual Meeting, the Proxies
Page 2
will be voted for such other nominee(s) as shall be designated by the current
Board of Directors to fill any vacancy. The Company has no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
AMENDMENT OF THE 1997 STOCK PLAN.
It is proposed to amend the 1997 Stock Plan to increase the number of
shares of common stock that the Company may issue pursuant to awards under the
1997 Stock Plan from 1,777,500 shares to 2,077,500 shares. This amendment will
require the affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of common stock that are present or represented by
proxy at the Annual Meeting.
OTHER MATTERS.
At the date this Proxy Statement went to press, we do not know of any other
matter to be raised at the Annual Meeting.
MAILING OF PROXY STATEMENTS.
We anticipate mailing this Proxy Statement and the accompanying Proxy to
stockholders on or about May 16, 2001.
Page 3
ITEM 1: ELECTION OF DIRECTORS
- -------------------------------------------------------------------------------
Item 1 is the election of two members of the Board of Directors. In
accordance with our Certificate of Incorporation, the Board of Directors is
grouped into three classes. At each Annual Meeting, directors constituting one
class are elected, each for a three-year term. Our bylaws presently provide that
the number of directors shall not be less than two nor more than nine, with the
exact number to be fixed from time to time by resolution of our Board of
Directors. The number of directors is currently fixed at 7.
The Class I directors whose terms expire at the 2001 Annual Meeting are
Kevin Bermeister and Brent Cohen. The Board of Directors has nominated Kevin
Bermeister and Brent Cohen to serve as Class I directors for terms expiring in
2004. The Class II directors are serving terms that expire in 2002, and the
Class III directors are serving terms that expire in 2003. Two Class I directors
will be elected at the Annual Meeting.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
will be voted for such other nominee(s) as shall be designated by the then
current Board of Directors to fill any vacancy. The Company has no reason to
believe that any nominee will be unable or unwilling to serve if elected as a
director.
The Board of Directors proposes the election of the following nominees as
Class I directors:
Kevin Bermeister
Brent Cohen
If elected, Mr. Bermeister and Mr. Cohen are expected to serve until the
2004 Annual Meeting of stockholders. The two nominees for election as Class I
directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected.
The principal occupation and certain other information about the nominees,
other directors whose terms of office continue after the Annual Meeting, and
certain executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED ABOVE.
Page 4
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to nominees,
continuing directors and officers of the Company as of April 30, 2001:
DIRECTORS AND EXECUTIVE OFFICERS
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
- ------------------------------- --- ---------- --------
NOMINEES:
CLASS I DIRECTORS
(terms expiring in 2001)
Kevin Bermeister............... 40 1999 Director
Brent Cohen.................... 42 1998 Director
CONTINUING DIRECTORS:
CLASS II DIRECTORS (1)
(terms expiring in 2002)
Michael Katz................... 59 1998 Director
Jonathan Burstein (2).......... 34 1999 Vice President of Operations and Director
CLASS III DIRECTORS
(terms expiring in 2003)
Mark Dyne (3)................. 40 1997 Chairman of the Board of Directors
Colin Dyne (3)................. 38 1997 Chief Executive Officer, President and Director
OTHER OFFICERS:
Jonathan Markiles.............. 36 Secretary and Vice President of Strategic
Planning and Business Development
Ronda Sallmen.................. 35 Chief Financial Officer
- -----------------
<FN>
(1) There is currently a vacancy in the Class II directors.
(2) Jonathan Burstein is Colin Dyne's and Mark Dyne's brother-in-law.
(3) Colin Dyne and Mark Dyne are brothers.
</FN>
CLASS I DIRECTOR NOMINEES: TERMS EXPIRING IN 2001
KEVIN BERMEISTER
Mr. Bermeister has served on our Board of Directors since 1999.
He has been a director of Brilliant Digital Entertainment, Inc. since
August 1996 and has served as its President since October 1996. Mr.
Bermeister is a director of Sega Ozisoft Pty. Ltd. and previously
served as its Co-Chief Executive Officer. Mr. Bermeister is a founder
of Sega Ozisoft which commenced business in 1982. Mr. Bermeister also
is a director of Packard Bell NEC Australia Pty. Ltd. and Jacfun Pty.
Ltd. Jacfun owns the Darling Harbour property occupied by the Sega
World
Page 5
indoor theme park in Sydney, Australia. Mr. Bermeister has served on
numerous advisory boards, including Virgin Interactive Entertainment
Ltd.
MEMBER: COMPENSATION COMMITTEE, AUDIT COMMITTEE
BRENT COHEN
Mr. Cohen has served on the Board of Directors since 1998. Mr.
Cohen has been Chief Executive Officer and a director of US Search.com
since February 2000. Mr. Cohen served in an advisory capacity to a
number of companies from October 1998 through February 2000. From 1996
through October 1998, Mr. Cohen held senior management positions with
Packard Bell NEC, Inc. (formerly Packard Bell Electronics), including
Chief Operating Officer, Chief Financial Officer and President-
consumer products and international divisions. Before joining Packard
Bell NEC, Inc., Mr. Cohen was employed with Arthur Young & Company
(now Ernst & Young) in their management consulting practice. Mr. Cohen
is a charted accountant in the Republic of South Africa.
MEMBER: COMPENSATION COMMITTEE, AUDIT COMMITTEE
CLASS II DIRECTORS: TERMS EXPIRING IN 2002
MICHAEL KATZ
Mr. Katz has served on our Board of Directors since 1998. Mr.
Katz has served as President, Chief Operating Officer and director of
Transducer Controls Corporation, a manufacturer of position and
pressure transducers, from 1987 to the present. During the same
period, Mr. Katz has also served as President, Chief Operating Officer
and director of Tedea-Huntleigh, Inc., a manufacturer of load-cells
and force-transducers. Since 1999, Mr. Katz has also served as
Chairman of Lebow Products, a manufacturer of torque-transducers. Mr.
Katz holds an MBA and Bachelor of Science degree in mechanical
engineering.
MEMBER: AUDIT COMMITTEE
JONATHAN BURSTEIN
Mr. Burstein has served as our Vice President of Operations since
1999 and has served on our Board of Directors since 1999. From 1987
until the present, Mr. Burstein has been responsible for managing many
of our largest customer accounts and supervising our sales force and
brand managers. Mr. Burstein is currently responsible for
transitioning customers to our Managed Trim Solution e-commerce
system. Mr. Burstein is the brother-in-law of Colin Dyne and Mark
Dyne.
CLASS II DIRECTORS: TERMS EXPIRING IN 2003
MARK DYNE
Mr. Dyne has served as Chairman of the Board of Directors since
1997. He has served as Chairman of the Board of Directors and Chief
Executive Officer of Brilliant Digital Entertainment, Inc., a publicly
traded corporation, since October 1996. He is a founder and director
of Ozisoft Pty Ltd., a leading distributor of entertainment software
in both Australia and New Zealand. He is also a director of Monto
Holdings Pty., Ltd., a private investment company. From November 1998
to March 2000, Mr. Dyne served as Chairman and Chief Executive Officer
of Sega Gaming Technology Inc., a Las Vegas based gaming company. From
October 1998 to December 1999, Mr. Dyne also served as Chairman and
Chief Executive Officer of Virgin Interactive Entertainment Ltd., a
distributor of computer software programs and video
Page 6
games that is based in London, England. Mr. Dyne was a founder of
Packard Bell NEC Australia Pty. Ltd., a manufacturer and distributor
of personal computers through the Australian mass merchant channel.
COLIN DYNE
Mr. Dyne founded Tag-It, Inc., one of our subsidiaries, in 1991
with his father, Harold Dyne, and has served as our President since
inception and as our Chief Executive Officer since 1997. Before
founding Tag-It, Inc. in 1991, Mr. Dyne worked in numerous positions
within the stationery products industry, including owning and
operating retail stationery businesses and servicing the larger
commercial products industry through contract stationery and printing
operations. Mr. Dyne is the brother of Mark Dyne.
OTHER OFFICERS
JONATHAN MARKILES
Mr. Markiles is our Vice President, Strategic Planning and
Business Development, and Secretary. Mr. Markiles joined Tag-It, Inc.
in May 1994 as our general manager where he has been responsible for
production, distribution and international operations. Before joining
Tag-It, Inc., Mr. Markiles received his MBA from the University of
Southern California in May 1994. From 1987 until August 1992, Mr.
Markiles held various operational positions with Windshields America,
Inc., a national chain of autoglass stores.
RONDA SALLMEN
Ms. Sallmen has served as our Chief Financial Officer since she
joined us in June 2000. Before joining us, Ms. Sallmen was a senior
manager at BDO Seidman, LLP, independent public accountants, where she
was the director of the Apparel Industry Practice in Los Angeles,
California. In this role, she was responsible for providing audit,
transaction support and business advisory services to private and
publicly held companies. Ms. Sallmen has over ten years experience in
the apparel industry. She was also a member of the advisory board of a
leading apparel industry group. Ms. Sallmen is a certified public
accountant and a member of the American Institute of Certified Public
Accountants and the California State Society of Certified Public
Accountants.
BOARD MEETINGS AND COMMITTEES.
The Board of Directors held three meetings and acted eight additional times
by unanimous written consent during fiscal 2000. Neither Mark Dyne nor Paul
Markiles attended one meeting of the Board of Directors in fiscal 2000.
Other than these directors, no director attended fewer than 75% of all the
meetings of the Board of Directors and those committees on which he or she
served in fiscal 2000. The Board of Directors maintains an audit committee and a
compensation committee.
The audit committee currently consists of Messrs. Bermeister, Cohen and
Katz. The compensation committee currently consists of Messrs. Bermeister and
Cohen.
The role and responsibilities of the audit committee are set forth in a
written charter adopted by the Board and attached to this Proxy Statement as
Appendix A. The audit committee recommends the engagement of independent public
accountants, reviews the scope of the audit to be conducted by the independent
public accountants and meets quarterly with the independent public accountants
and our Chief Financial Officer to review matters relating to our financial
statements, our accounting principles and our system of internal accounting
controls. The audit committee reports its recommendations as to the approval of
our financial statements to the Board of
Page 7
Directors. All audit committee members are independent directors as defined in
the listing standards of the American Stock Exchange. The audit committee held
two meetings during fiscal 2000.
The compensation committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering our stock option and executive incentive
compensation plans. The compensation committee held three meetings during fiscal
2000.
DIRECTOR COMPENSATION
We currently pay nonemployee directors $1,500 for their personal attendance
at any meeting of the Board of Directors and $500 for attendance at any
telephonic meeting of the Board of Directors or at any meeting of a committee of
the Board of Directors. No non-employee directors received options to purchase
shares of common stock in fiscal 2000. We also reimburse directors for their
reasonable travel expenses incurred in attending board or committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
We have no interlocking relationships involving any of our compensation
committee members that would be required by the Securities and Exchange
Commission to be reported in this Proxy Statement and none of our officers or
full-time employees serves on our compensation committee.
Page 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to
each of the other most highly compensated officers whose compensation exceeded
$100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to the Company in all
capacities for each of the three years ended December 31 indicated below.
SUMMARY COMPENSATION TABLE
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------- ------------
NUMBER OF
FISCAL YEAR SECURITIES
NAME AND ENDED UNDERLYING
PRINCIPAL POSITION DECEMBER 31 SALARY OTHER (1) OPTIONS (2)
- --------------------------------------------- ----------- ------------- ------------- ------------
Colin Dyne.................................. 2000 $ 317,000 $ 54,940 140,000
Chief Executive Officer, President and 1999 229,251 27,921 145,000
Director 1998 229,251 23,040 98,000
Jonathan Burstein (3)....................... 2000 $ 167,980 $ 27,942 50,000
Vice President of Operations and 1999 175,168 35,929 20,000
Director 1998 167,979 26,347 30,000
Jonathan Markiles (4)....................... 2000 $ 178,846 $ -- 30,000
Vice President of Strategic Planning 1999 154,462 -- 15,000
and Business Development and 1998 111,497 -- 20,000
Secretary
<FN>
(1) Other compensation indicated in the above table consists of car and expense
allowances and medical and disability insurance.
(2) In October 1998, we repriced all of our then outstanding stock options
under our option repricing program. Under the program, option holders
exchanged options to purchase a total of 170,000 shares of common stock for
repriced stock options to purchase the same number of shares at a lower
exercise price.
(3) The number of shares underlying the options granted to Jonathan Burstein in
1998 consists of options to purchase 22,000 shares of common stock granted
in October 1998 and options to purchase 8,000 shares of common stock
granted in October 1997 which were repriced in October 1998 under our
option repricing program.
(4) The number of shares underlying the options granted to Jonathan Markiles in
1998 consists of options to purchase 12,000 shares of common stock granted
in October 1998 and options to purchase 8,000 shares of common stock
granted in October 1997 which were repriced in October 1998 under our
option repricing program.
</FN>
Page 9
OPTION GRANTS IN FISCAL 2000
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 2000. This information includes hypothetical potential gains from stock
options granted in fiscal 2000. These hypothetical gains are based entirely on
assumed annual growth rates of 5.0% and 10.0% in the value of our common stock
price over the 10-year life of the stock options granted in fiscal 2000. These
assumed rates of growth were selected by the Securities and Exchange Commission
for illustrative purposes only and are not intended to predict future stock
prices, which will depend upon market conditions and our future performance and
prospects.
OPTION GRANTS IN FISCAL 2000
PERCENT OF
TOTAL
OPTIONS
NUMBER OF GRANTED TO
SECURITIES EMPLOYEES EXERCISE POTENTIAL REALIZED VALUE AT
UNDERLYING GRANTED IN OR BASE ASSUMED RATE OF STOCK PRICE
OPTIONS FISCAL YEAR PRICE PER EXPIRATION APPRECIATION FOR OPTION
NAME GRANTED (1) SHARE (2) DATE TERM (3)
- ------------------------------------ ---------- ----------- ----------- ------------ --------------------------
5% 10%
------------ ------------
Colin Dyne.......................... 50,000(4) 12.5% $ 4.625 2/18/10 $ 11,563 $ 23,125
40,000 10.0 4.250 4/10/10 8,500 17,500
50,000 12.5 3.750 12/12/10 9,375 18,750
Jonathan Burstein................... 15,000(4) 3.7 4.625 2/10/10 3,469 6,938
15,000 3.7 4.250 4/10/10 3,188 6,375
20,000 5.0 3.750 12/12/10 3,750 7,500
Jonathan Markiles................... 15,000(4) 3.7 4.625 2/28/10 3,469 6,938
15,000 3.7% $ 3.750 12/12/10 $ 2,813 $ 5,625
<FN>
(1) We granted options covering an aggregate of 401,500 shares of common stock
to employees during the fiscal year ended December 31, 2000.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to various conditions.
(3) The realizable value at assumed rate of stock price appreciation for option
term is calculated using the potential realizable value of each grant.
(4) These options vested immediately upon the date of the grant.
</FN>
Page 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during fiscal 2000,
the number of shares of common stock underlying stock options held at fiscal
year-end and the value of options held at fiscal year-end based upon the last
reported sales price of the underlying securities on the American Stock Exchange
($4.0625 per share) on December 29, 2000, the last trading day during 2000, as
reported by the American Stock Exchange.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON VALUE DECEMBER 31, 2000 DECEMBER 31, 2000
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
Colin Dyne ......................... 69,689 $ 313,600 215,000 70,000 $ -- $ 15,625
Jonathan Burstein................... -- -- 68,500 31,500 71,825 17,300
Jonathan Markiles................... -- -- 46,000 19,000 44,200 15,738
STOCK OPTION REPRICING PROGRAM
In October 1998, we repriced all of our then outstanding stock options
under our option repricing program. The following table provides information
concerning the repricing program, including: (i) the name and position of each
Named Executive Officer and other executive officers who participated in the
repricing program, (ii) the date of the repricing, (iii) the number of
securities underlying repriced options, (iv) the per share market price of the
underlying security at the time of the repricing, (v) the original exercise
price of the canceled option at the time of the repricing, (vi) the per share
exercise price of the repriced option received in exchange for the existing
option and (vii) the original option term remaining at the date of repricing.
TEN YEAR OPTION/SAR REPRICINGS
NAME AND OFFICE MARKET EXERCISE LENGTH OF
NUMBER OF PRICE OF PRICE OF ORIGINAL
SECURITIES STOCK AT STOCK AT OPTION TERM
UNDERLYING TIME OF TIME OF REMAINING
OPTIONS/SARS REPRICING REPRICING NEW AT DATE OF
REPRICED OR OR OR EXERCISE REPRICING
NAME AND PRINCIPAL POSITION DATE AMENDED AMENDMENT AMENDMENT PRICE OR AMENDMENT
- ------------------------------------ -------- ------------ ---------- --------- -------- ------------
Jonathan Burstein................... 10/10/98 8,000 $1.1875 $3.20 $1.30 9 Years
Vice President of Operations
Jonathan Markiles................... 10/10/98 8,000 $1.1875 $3.20 $1.30 9 Years
Vice President of Strategic
Planning and Business
Development and Secretary
Francis Shinsato.................... 10/10/98 20,000 $1.1875 $3.20 $1.30 9 Years
Former Chief Financial Officer
Michael Dodo........................ 10/10/98 15,000 $1.1875 $3.20 $1.30 9 Years
Former Vice President of
Administration
Page 11
EMPLOYMENT CONTRACTS
None of the Named Executive Officers have employment agreements with the
Company and their employment may be terminated at any time.
STOCK INCENTIVE PLANS
The Company adopted the Tag-It Pacific, Inc. 1997 Stock Plan (the "1997
Plan") in October 1997. The purpose of the 1997 Plan is to provide incentives
and rewards to selected eligible directors, officers, employees and consultants
of the Company or its subsidiaries in order to assist the Company and its
subsidiaries in attracting, retaining and motivating those persons by providing
for or increasing the proprietary interests of those persons in the Company, and
by associating their interests in the Company with those of the Company's
stockholders. The maximum number of shares of common stock that may be issued
pursuant to awards granted under the 1997 Plan is 1,777,500, subject to certain
adjustments to prevent dilution. Any shares of common stock subject to an award
which for any reason expires or terminates unexercised are again available for
issuance under the 1997 Plan.
The 1997 Plan authorizes its administrator to enter into any type of
arrangement with an eligible participant that, by its terms, involves or might
involve the issuance of (1) shares of common stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the common stock, or (3) any other
security or benefit with a value derived from the value of the common stock. Any
stock option granted may be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or a
nonqualified stock option. The 1997 Plan currently is administered by the
Compensation Committee of the Board of Directors of the Company. Subject to the
provisions of the 1997 Plan, the Compensation Committee will have full and final
authority to select the executives and other employees to whom awards will be
granted thereunder, to grant the awards and to determine the terms and
conditions of the awards and the number of shares to be issued pursuant thereto.
No participant may receive awards representing more than 25% of the aggregate
number of shares of common stock that may be issued pursuant to all awards under
the 1997 Plan.
As of December 31, 2000, 617,000 shares of common stock remained available
for grant of awards to eligible participants under the 1997 Plan.
Page 12
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee is charged with the responsibility of
administering all aspects of the Company's executive compensation programs. The
committee, which currently is comprised of two independent, non-employee
directors, also grants all stock options and otherwise administers the 1997
Plan.
TOTAL COMPENSATION. It is the philosophy of the committee that executive
compensation should be structured to provide an appropriate relationship between
executive compensation and performance of the Company and the share price of the
common stock, as well as to attract, motivate and retain executives of
outstanding abilities and experience. The principal elements of total
compensation paid to executives of the Company are as follows:
BASE SALARY. Base salaries are negotiated at the commencement of an
executive's employment with the Company, and are designed to reflect the
position, duties and responsibilities of each executive officer, the cost of
living in the area in which the officer is located, and the market for base
salaries of similarly situated executives at other companies engaged in
businesses similar to that of the Company. Base salaries may be annually
adjusted in the sole discretion of the committee to reflect changes in any of
the foregoing factors.
STOCK INCENTIVE PLAN OPTIONS AND AWARDS. Under the 1997 Plan, the committee
is authorized to grant any type of award which might involve the issuance of
shares of common stock, options, warrants, convertible securities, stock
appreciation rights or similar rights or any other securities or benefits with a
value derived from the value of the common stock. The number of options granted
to an individual is based upon a number of factors, including his or her
position, salary and performance, and the overall performance and stock price of
the Company.
ANNUAL INCENTIVES. The committee believes that executive compensation
should be determined with specific reference to the Company's overall
performance and goals, as well as the performance and goals of the division or
function over which each individual executive has primary responsibility. In
this regard, the committee considers both quantitative and qualitative factors.
Quantitative items used by the committee in analyzing the Company's performance
include sales and sales growth, results of operations and an analysis of actual
levels of operating results and sales to budgeted amounts. Qualitative factors
include the committee's assessment of such matters as the enhancement of the
Company's image and reputation, expansion into new markets, and the development
and success of new strategic relationships and new marketing opportunities.
DETERMINATION OF CHIEF EXECUTIVE OFFICER'S COMPENSATION. The committee
believes that the Chief Executive Officer's compensation should be determined
with specific reference to the Company's overall performance and goals applying
the same quantitative and qualitative factors with which it determines the
annual incentives of its other executive officers. The committee set the base
salary for the Chief Executive Officer for the fiscal year 2000 at a level which
is designed to provide the Chief Executive Officer with a salary which is
competitive with salaries paid to chief executive officers of similarly-sized
companies in the industry and commensurate with the Chief Executive Officer's
experience.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Effective January 1, 1994, under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), a public company generally will not be entitled
to a deduction for non-performance-based compensation paid to certain executive
officers to the extent such compensation exceeds $1.0 million. Special rules
apply for "performance-based" compensation, including the approval of the
performance goals by the stockholders of the Company.
All compensation paid to the Company's employees in fiscal 2000 will be
fully deductible. With respect to compensation to be paid to executives in 2001
and future years, in certain instances such compensation may exceed $1.0
million. However, in order to maintain flexibility in compensating executive
officers in a manner designed to promote varying corporate goals, the
Compensation Committee has not adopted a policy that all compensation must be
deductible.
Compensation Committee
Kevin Bermeister
Brent Cohen
Page 13
REPORT OF AUDIT COMMITTEE
The audit committee of the Board of Directors, which consists of 3
independent directors, as that term is defined in Section 121(A) of the listing
standards of the American Stock Exchange, has furnished the report set forth
below.
The audit committee assists the Board in overseeing and monitoring the
integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the audit committee are set
forth in a written charter adopted by the Board, which is attached as Appendix
"A" to this Proxy Statement. The audit committee reviews and reassesses the
Charter annually and recommends any changes to the Board for approval.
The audit committee is responsible for overseeing the Company's overall
financial reporting process. In fulfilling its responsibilities for the
financial statements for fiscal year 2000, the audit committee:
- Reviewed and discussed the audited financial statements for the year
ended December 31, 2000 with management and BDO Seidman, LLP ("BDO"),
the Company's independent auditors;
- Discussed with BDO the matters required to be discussed by Statement
on Auditing Standards No. 61 relating to the conduct of the audit; and
- Received written disclosures and the letter from BDO regarding its
independence as required by Independence Standards Board Standard No.
1. The audit committee discussed with BDO their independence.
- Based on its review of the audited financial statements and
discussions with management and BDO, recommended to the Board that the
audited financial statements be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 for filing
with the Securities and Exchange Commission.
The audit committee also considered the status of pending litigation and
other areas of oversight relating to the financial reporting and audit process
that the committee determined appropriate.
AUDIT FEES
The aggregate fees billed by BDO for professional services rendered for the
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2000 and the reviews of the financial statements included in the
Company's Forms 10-QSB for that fiscal year, were $121,360.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
BDO did not bill any fees for professional services rendered for
information technology services relating to financial information systems design
and implementation for the fiscal year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by BDO for services rendered to the Company other
than the services described above under "Audit Fees" and "Financial Information
Systems Design and Implementation Fees," for the fiscal year ended December 31,
2000, were $100,186.
The audit committee has considered whether the provision of non-audit
services is compatible with maintaining the principal accountant's independence.
Audit Committee.
Kevin Bermeister
Brent Cohen
Michael Katz
Page 14
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative
total stockholder return of the common stock of the Company during the period
from January 23, 1998 to December 31, 2000, compared with the cumulative returns
of the American Stock Exchange Composite Index and The Dow Jones Textiles &
Apparel Index. The comparison assumes $100 was invested on January 23, 1998 in
the common stock of the Company and in each of the foregoing indices. The stock
price performance on the following graph is not necessarily indicative of future
stock price performance.
COMPARISON OF THREE YEAR CUMULATIVE TOTAL RETURN*
AMONG TAG-IT PACIFIC, INC., THE AMEX COMPOSITE INDEX
AND THE DOW JONES TEXTILES & APPAREL INDEX
[GRAPH OMITTED]
*$100 INVESTED ON 1/23/98 IN STOCK OR ON 12/31/97
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
Cumulative Total Return
------------------------------------------
1/23/1998 12/98 12/99 12/00
TAG-IT PACIFIC, INC. 100.00 109.38 140.63 101.58
AMEX COMPOSITE 100.00 107.33 137.12 140.90
DOW JONES TEXTILES & APPAREL 100.00 83.74 81.52 99.06
Page 15
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Except as disclosed in this Proxy Statement, neither the nominees for
election as directors of the Company, the directors or senior officers of the
Company, nor any stockholder owning more than five percent of the issued shares
of the Company, nor any of their respective associates or affiliates, had any
material interest, direct or indirect, in any material transaction to which the
Company was a party during fiscal 2000, or which is presently proposed.
TRANSACTIONS INVOLVING OUR OFFICERS, DIRECTORS, OR THEIR IMMEDIATE FAMILY AND
AFFILIATES
D.P.S. Associates, a general partnership in which Harold Dyne, our former
President and a former director was a general partner, is the lessor of our
former executive offices located at 3820 South Hill Street in Los Angeles,
California, pursuant to a lease agreement with Pacific Trim & Belt, Inc., one of
our subsidiaries. The lease with D.P.S. Associates provides for a base rent of
$9,072 per month on a month-to-month basis.
Since January 1, 1996, Averil Capital Markets Group, Inc., a financial
advisory firm founded and controlled by Diana Maranon, has performed various
services for AGS Stationery and us, including investigation of strategic
financing and other corporate growth initiatives. Ms. Maranon served as one of
our directors from January 1998 until May 1999. As consideration for these
services, AGS Stationery paid Averil the aggregate amount of $26,123, including
out of pocket expenses. As additional compensation for services rendered, AGS
Stationery granted to Chloe Holdings, Inc., an affiliate of Averil, warrants to
purchase up to 135 shares of common stock of AGS Stationery, and we paid Averil
$175,000 upon consummation of our initial public offering. Immediately prior to
our initial public offering, the warrants granted to Chloe Holdings became
exercisable for 22,841 shares of our common stock. In November 1999, Chloe
Holdings exercised the options on a cashless basis and received 19,379 shares of
our common stock. Consulting fees paid to Averil for the year ended December 31,
2000 amounted to $18,655. We plan to continue to engage Averil; however, we are
unable to currently estimate the extent to which we will use Averil in the
future.
For the year ended December 31, 2000, we paid $87,500 in consulting fees to
Diversified Consulting, LLC, a company owned by Audrey Dyne, mother of Colin
Dyne and Mark Dyne, and $87,200 in consulting fees to Kevin Bermeister, a
director.
Murray Markiles, who is Jonathan Markiles' brother, is a partner with Akin,
Gump, Strauss, Hauer & Feld, L.L.P., successor by merger to Troop Steuber Pasich
Reddick & Tobey, LLP. Akin, Gump, Strauss, Hauer & Feld, L.L.P. is our legal
counsel. As compensation for legal services performed by Akin, Gump, Strauss,
Hauer & Feld, L.L.P. in connection with our initial public offering, we granted
to Akin, Gump, Strauss, Hauer & Feld, L.L.P. a warrant to purchase 35,555 shares
of common stock at an exercise price of $3.60 per share. In October 1998, we
repriced the warrants issued to Akin, Gump, Strauss, Hauer & Feld, L.L.P. from
$3.60 per share to $1.50 per share. The warrant is currently exercisable,
expires on December 31, 2003 and provides for piggyback registration rights.
Monto Holdings Pty. Ltd. and NPM Investments, Inc. have made loans to our
subsidiaries to be used for general working capital purposes and other purposes.
Mark Dyne, our Chairman of the Board, holds a significant equity interest in
Monto Holdings Pty. Ltd. and NPM Investments, Inc. Alan Saloner, one of our
significant stockholders, holds a significant equity interest in NPM
Investments, Inc. Kevin Bermeister, one of our directors, holds an equity
interest in Monto Holdings Pty. Ltd. The loans from Monto Holdings Pty. Ltd. and
NPM Investments, Inc. are all evidenced by promissory notes executed by the
subsidiary and are due and payable on the fifteenth day following the date on
which the holder of the promissory note makes written demand for payment.
The following are details of the loans from Monto Holdings Pty. Ltd.:
o loans in October 1997 of $12,000 to AGS Stationery and of $110,000 in
November 1997 to Pacific Trim & Belt, Inc., to fund expenses incurred
in connection with our initial public offering, each at interest rates
of 7.5% per annum (repaid $40,000 in 1999 and $82,000 in 2000);
o a loan in February 1996 of $300,000 to AGS Stationery, Inc. at an
interest rate of 7.5% per annum (repaid in January 1998);
Page 16
o a loan in January 1995 of $124,626 to Pacific Trim & Belt, Inc. at an
interest rate of 10.0% per annum (of which we had repaid $30,707 to
Monto Holdings Pty. Ltd. through December 31, 2000);
The following are details of the loans from and other transactions with NPM
Investments, Inc.:
o a loan in August 1996 of $715,000 to Tag-It, Inc. at an interest rate
of 7.5% per annum, of which $400,000 was converted into 266,666 shares
of common stock on October 15, 1998 (balance repaid in February 1999);
o loans in September and October 1997 of $126,972 to Tag-It, Inc, at an
interest rate of 7.5% per annum to fund expenses incurred in
connection with our initial public offering (repaid in July 1998); and
o an additional $400,000 of indebtedness loaned by NPM Investments, Inc
to our subsidiaries was converted into 266,666 shares of our common
stock, effective October 15, 1998. We issued these shares to
Heathmount International Limited, a company in which Alan Saloner
holds an equity interest. Mark Dyne did not receive any interest,
directly or indirectly, in the shares issued to Heathmount
International Limited upon conversion of this indebtedness.
As of December 31, 2000, Colin Dyne was indebted to Tag-It, Inc. in the
aggregate amount of $300,422. A portion of this indebtedness is evidenced by a
promissory note, dated August 31, 1997, in the principal amount of $71,542 and a
promissory note, dated October 15, 1997, in the principal amount of $6,089. Both
promissory notes are due and payable on demand and bear interest at a rate of
7.5% per annum. The remaining indebtedness is due and payable on demand. In
addition to these two promissory notes, Colin Dyne loaned the Company $185,000
in December 2000. The note payable is unsecured, bears interest at a rate of 11%
and is due on demand.
As of December 31, 2000, Jonathan Burstein was indebted to Tag-It, Inc. in
the aggregate amount of $80,610. This indebtedness bears interest of 7.5 % and
is due and payable on demand.
Mark Dyne loaned us $160,000 in August 1999 and $15,000 in January 1999.
This indebtedness is evidenced by unsecured promissory notes, dated August 17,
1999 and January 31, 1999, which are due and payable on demand and bear interest
at a rate of 7.0% and 7.5% per annum. During the year ended December 31, 2000,
we repaid $95,205 to Mr. Dyne. In October 2000, Mark Dyne loaned us a further
$500,000. This indebtedness is evidenced by a convertible secured subordinated
promissory note, dated October 4, 2000, which is due and payable on demand,
bears interest at a rate of 11.0% per annum and convertible at the election of
the holder into our common stock at a price of $4.50 per share.
Our sales to Brilliant Digital Entertainment amounted to $144,000 in fiscal
1999 and $143,900 in fiscal 1998. Mark Dyne, our chairman, and Kevin Bermeister,
one of our directors, are also officers of Brilliant Digital Entertainment.
$81,400 of accounts receivables were due from Brilliant Digital Entertainment at
December 31, 1999.
TRANSACTIONS INVOLVING STRATEGIC RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS
In October 1998, KG Investment, LLC, a Los Angeles-based private investment
company, purchased 2,390,000 restricted shares of our common stock for an
aggregate price of $2,688,750. KG Investment, LLC is currently a significant
stockholder, owning approximately 30.4% of the outstanding shares of our common
stock at December 31, 2000. KG Investment, LLC is also affiliated with Tarrant
Apparel Group, our largest customer, because the owners of KG Investment, LLC
are Gerard Guez, Chairman of the Board and Chief Executive Officer and a
significant stockholder of Tarrant Apparel Group, and Todd Kay, President and a
significant stockholder of Tarrant Apparel Group. During fiscal 1998, Tarrant
Apparel Group purchased approximately $569,000 in products from us. That amount
increased to $15,500,000 in 1999 and to $23,760.000 in 2000. As of December 31,
2000, 1999 and 1998, accounts receivable related party included approximately
$8,270,000, $2,047,000 and $580,000, respectively, due from Tarrant Apparel
Group. Terms are net 60 days. During the year ended December 31, 1999,
Page 17
we loaned Mr. Guez $75,000 in the form of an unsecured promissory note which
bears interest at prime and is payable on demand.
In connection with this investment, KG Investment, LLC agreed not to
dispose of its shares of common stock before October 16, 2000, except to
affiliated parties, without our prior written consent. After October 16, 2000,
KG Investment, LLC may sell or transfer any of the shares in accordance with
applicable law; provided that we have an assignable right of first refusal to
purchase the shares upon the same or economically equivalent terms and
conditions, if the sale is not made in accordance with the volume restrictions
of Rule 144 under the Securities Act of 1933 or in connection with a public
offering initiated by us. We granted KG Investment, LLC piggyback registration
rights which entitles it to sell its shares of common stock in a registered
public offering in the same proportion as shares of common stock sold in the
same offering by any of Colin Dyne, Mark Dyne, the Estate of Harold Dyne, Larry
Dyne or Jonathan Burstein.
On December 22, 2000, we entered into an exclusive supply agreement with
Hubert Guez, Paul Guez, Azteca Production International, Inc., AZT International
SA D RL, and Commerce Investment Group, LLC. Pursuant to this supply agreement
we will provide all trim-related products for certain programs manufactured by
Azteca Production International. The agreement provides for a minimum aggregate
total of $10,000,000 in annual purchases by Azteca Production International and
its affiliates during each year of the three-year term of the agreement, if and
to the extent, we are able to provide trim products on a basis that is
competitive in terms of price and quality. For purposes of the supply agreement,
the first year of the term is a 15-month period ending March 31, 2002 and each
year after that date will be a 12-month year. In addition, we purchased trim
inventory held by Azteca Production and its affiliates on December 22, 2000.
Under the terms of the supply agreement, we issued 1,000,000 shares of
restricted common stock to Commerce Investment Group, LLC. The shares of
restricted stock were issued at the market price of our stock at the time of
issuance. Azteca Production International has been a significant customer of the
Company for many years.
On April 3, 2000, we entered into a ten-year exclusive license and
distribution agreement with Talon, Inc. TALON is a leading brand of zippers with
an eighty-year history. These exclusive license and distribution rights give us
the right to distribute zippers and trim products under the TALON brand name in
the United States, Mexico, Canada and the Pacific Rim. In exchange for these
exclusive distribution rights, we issued 850,000 shares of Series B convertible
preferred stock to GICISA. After a period of 30 months from the issuance, the
shares will be convertible into our common stock once the average price per
share of our common stock reaches or exceeds $8.00 for a 30-day consecutive
period. The preferred stock is automatically convertible into shares of our
common stock based on a rate of one minus the fraction of $2.50 over the average
per share closing price of our common stock for the 30-day period preceding the
conversion. We began shipping products under the TALON brand name in July 2000.
Page 18
ITEM 2: PROPOSAL TO AMEND THE 1997 STOCK PLAN
- -------------------------------------------------------------------------------
GENERAL
The Board of Directors has approved an amendment (the "Plan Amendment") to
the Tag-It Pacific, Inc. 1997 Stock Plan to increase the number of shares of
common stock available for issuance under the 1997 Plan from 1,777,500 shares to
2,077,500 shares. The Plan Amendment is being submitted to the Company's
stockholders for approval.
The Board of Directors approved the Plan Amendment to ensure that a
sufficient number of shares of common stock are available for issuance under the
1997 Plan. At April 27, 2001, only 492,000 shares remained available for grants
of awards under the 1997 Plan. The Board of Directors believes that the ability
to grant stock-based awards is important to the future success of the Company.
The grant of stock options and other stock-based awards can motivate high levels
of performance and provide an effective means of recognizing employee
contributions to the success of the Company. In addition, stock-based
compensation can be valuable in recruiting and retaining highly qualified
technical and other key personnel who are in great demand as well as rewarding
and providing incentives to our current employees. The increase in the number of
shares available for awards under the 1997 Plan will enable the Company to
continue to realize the benefits of granting stock-based compensation.
At April 27, 2001, the last reported sales price of the common stock on the
American Stock Exchange was $3.79 per share.
SUMMARY OF THE 1997 PLAN
PURPOSE. The purpose of the 1997 Plan is to provide incentives and rewards
to selected eligible directors, officers, employees and consultants of the
Company or its subsidiaries in order to assist the Company and its subsidiaries
in attracting, retaining and motivating those persons by providing for or
increasing the proprietary interests of those persons in the Company, and by
associating their interests in the Company with those of the Company's
stockholders.
ADMINISTRATION. The 1997 Plan may be administered by the Board of
Directors, or a committee of two or more directors appointed by the Board of
Directors whose members serve at the pleasure of the Board. The 1997 Plan
currently is administered by the Compensation Committee of the Board of
Directors. The party administering the 1997 Plan is referred to as the
"Administrator." Subject to the provisions of the 1997 Plan, the Administrator
has full and final authority to (i) select from among eligible directors,
officers, employees and consultants, those persons to be granted awards under
the 1997 Plan, (ii) determine the type, size and terms of individual awards to
be made to each person selected, (iii) determine the time when awards will be
granted and to establish objectives and conditions (including, without
limitation, vesting and performance conditions), if any, for earning awards,
(iv) amend the terms or conditions of any outstanding award, subject to
applicable legal restrictions and to the consent of the other party to such
award, (v) authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the 1997 Plan, and (vii) make
any and all other determinations which the Administrator determines to be
necessary or advisable in the administration of the 1997 Plan. The Administrator
has full power and authority to administer and interpret the 1997 Plan and to
adopt, amend and revoke such rules, regulations, agreements, guidelines and
instruments for the administration of the 1997 Plan and for the conduct of its
business as the Administrator deems necessary or advisable.
ELIGIBILITY. Any person who is a director, officer, employee or consultant
of the Company, or any of its subsidiaries (a "Participant"), is eligible to be
considered for the grant of awards under the 1997 Plan. No Participant may
receive awards representing more than 25% of the aggregate number of shares of
common stock that may be issued pursuant to all awards under the 1997 Plan. At
April 27, 2001, approximately 92 officers, directors and employees of the
Company were eligible to receive awards under the 1997 Plan.
TYPES OF AWARDS. Awards authorized under the 1997 Plan may consist of any
type of arrangement with a Participant that, by its terms, involves or might
involve or be made with reference to the issuance of shares of the Company's
common stock, or a derivative security with an exercise or conversion price
related to the common stock or with a value derived from the value of the common
stock. Awards are not restricted to any specified form or structure and may
include sales, bonuses and other transfers of stock, restricted stock, stock
options, reload stock
Page 19
options, stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, or any
other type of award which the Administrator shall determine is consistent with
the objectives and limitations of the 1997 Plan. An award may consist of one
such security or benefit, or two or more of them in tandem or in the
alternative.
CONSIDERATION. The common stock or other property underlying an award may
be issued for any lawful consideration as determined by the Administrator,
including, without limitation, a cash payment, services rendered, or the
cancellation of indebtedness. An award may provide for a purchase price of the
common stock or other property at a value less than the fair market value of the
common stock or other property on the date of grant. In addition, an award may
permit the recipient to pay the purchase price of the common stock or other
property or to pay such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by delivering previously owned shares of
capital stock of the Company or other property, or by reducing the number of
shares of common stock or the amount of other property otherwise issuable
pursuant to such award.
TERMINATION OF AWARDS. All awards granted under the 1997 Plan expire ten
years from the date of grant, or such shorter period as is determined by the
Administrator. No option is exercisable by any person after such expiration. If
an award expires, terminates or is canceled, the shares of common stock not
purchased thereunder shall again be available for issuance under the 1997 Plan.
AMENDMENT AND TERMINATION OF THE 1997 PLAN. The Administrator may amend the
1997 Plan at any time, may suspend it from time to time or may terminate it
without approval of the stockholders; provided, however, that stockholder
approval is required for any amendment which materially increases the number of
shares for which awards may be granted, materially modifies the requirements of
eligibility, or materially increases the benefits which may accrue to recipients
of awards under the 1997 Plan. However, no such action by the Board of Directors
or stockholders may unilaterally alter or impair any award previously granted
under the 1997 Plan without the consent of the recipient of the award. In any
event, the 1997 Plan shall terminate on October 1, 2007 (ten years following the
date it was approved by the Company's stockholders) unless sooner terminated by
action of the Board of Directors. The 1997 Plan was first amended in fiscal 1999
to increase the number of shares of common stock available for issuance under
the 1997 Plan from 562,500 shares to 1,177,500 shares and again in fiscal 2000
to increase the number of shares of common stock available for issuance under
the amended 1997 Plan from 1,177,500 shares to 1,777,500 shares. The Company's
stockholders approved the first amendment to the plan at the 1999 Annual Meeting
of stockholders and the second amendment to the plan at the 2000 Annual Meeting
of stockholders.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 27, 2001, the only type of award granted by the Company under
the 1997 Plan had been stock options. The following is a general discussion of
the principal United States federal income tax consequences of both "incentive
stock options" within the meaning of Section 422 of the Code ("Incentive Stock
Options") and non-statutory stock options ("Non-statutory Stock Options") based
upon the United States Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, all of which are subject to
modification at any time. The 1997 Plan does not constitute a qualified
retirement plan under Section 401(a) of the Code (which generally covers trusts
forming part of a stock bonus, pension or profit-sharing plan funded by employer
and/or employee contributions which are designed to provide retirement benefits
to participants under certain circumstances) and is not subject to the Employee
Retirement Income Security Act of 1974 (the pension reform law which regulates
most types of privately funded pension, profit sharing and other employee
benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is recognized
for federal income tax purposes by an optionee at the time an Incentive Stock
Option is granted, and, except as discussed below, no income is recognized by an
optionee upon his or her exercise of an Incentive Stock Option. If the optionee
makes no disposition of the common stock received upon exercise within two years
from the date such option was granted or one year from the date such option is
exercised (the "ISO Holding Period Requirements"), the optionee will recognize
long-term capital gain or loss when he or she disposes of his or her common
stock. Such gain or loss generally will be measured by the difference between
the exercise price of the option and the amount received for the common stock at
the time of disposition.
Page 20
If the optionee disposes of the common stock acquired upon exercise of an
Incentive Stock Option without satisfying the ISO Holding Period Requirements,
any amount realized from such "disqualifying disposition" will be taxed at
ordinary income tax rates in the year of disposition to the extent that (i) the
lesser of (a) the fair market value of the shares of common stock on the date
the Incentive Stock Option was exercised or (b) the fair market value of such
shares at the time of such disposition exceeds (ii) the Incentive Stock Option
exercise price. Any amount realized upon disposition in excess of the fair
market value of the shares of common stock on the date of exercise will be
treated as long-term or short-term capital gain depending upon the length of
time the shares have been held.
The use of stock acquired through exercise of an Incentive Stock Option to
exercise an Incentive Stock Option will constitute a disqualifying disposition
if the ISO Holding Period Requirements have not been satisfied.
For alternative minimum tax purposes, the excess of the fair market value
of the shares of common stock as of the date of exercise over the exercise price
of the Incentive Stock Option is included in computing that year's alternative
minimum taxable income. However, if the shares of common stock are disposed of
in the same year, the maximum alternative minimum taxable income with respect to
those shares is the gain on disposition of the shares. There is no alternative
minimum taxable income from a disqualifying disposition in subsequent years.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY STOCK OPTIONS. No income generally
is recognized by a holder of Non-statutory Stock Options at the time
Non-statutory Stock Options are granted under the 1997 Plan. In general, at the
time shares of common stock are issued to a holder pursuant to the exercise of
Non-statutory Stock Options, the holder will recognize ordinary income equal to
the excess of the fair market value of the shares on the date of exercise over
the exercise price.
A holder will recognize gain or loss on the subsequent sale of common stock
acquired upon exercise of Non-statutory Stock Options in an amount equal to the
difference between the sales price and the tax basis of the common stock, which
will include the exercise price paid plus the amount included in the holder's
income by reason of the exercise of the Non-statutory Stock Options. Provided
the shares of common stock are held as a capital asset, any gain or loss
resulting from a subsequent sale will be short-term or long-term capital gain or
loss depending upon the length of time the shares have been held.
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. The Company will not
be allowed a deduction for federal income tax purposes at the time of the grant
or exercise of an Incentive Stock Option. There are also no federal income tax
consequences to the Company as a result of the disposition of common stock
acquired upon exercise of an Incentive Stock Option if the disposition is not a
"disqualifying disposition." At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the amount received by
the optionee to the extent that such amount is taxable to the optionee at
ordinary income tax rates.
CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally, the
Company will be entitled to a deduction for federal income tax purposes in the
Company's taxable year in which the optionee's taxable year of income inclusion
ends and in the same amount as the optionee is considered to have realized
ordinary income in connection with the exercise of Non-statutory Stock Options.
REQUIRED VOTE
The approval of the Plan Amendment requires the affirmative vote of a
majority of the votes entitled to be cast by the holders of shares of the
Company's common stock present or represented and entitled to vote on this
matter at the Annual Meeting. An abstention will be counted toward the
tabulation of votes cast and will have the same effect as a vote against the
proposal. A broker non-vote, however, will not be treated as a vote cast for or
against approval of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE PLAN AMENDMENT.
Page 21
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of April 27, 2001:
o each person who is known to us to be the beneficial owner of more than
5.0% of our outstanding common stock;
o each of our directors;
o the Named Executive Officers; and
o all of our directors and executive officers as a group
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned by
any person who has or shares voting or investment power with respect to such
shares. Shares of common stock under warrants or options currently exercisable
or exercisable within 60 days of the date of this information are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such warrants or options but are not deemed outstanding for computing
the percentage ownership of any other person. As a result, the percentage of
outstanding shares of any person as shown in this table does not necessarily
reflect the person's actual ownership or voting power with respect to the number
of shares of common stock actually outstanding at April 27, 2001. Unless
otherwise indicated, the persons named in this table have sole voting and sole
investment power with respect to all shares shown as beneficially owned, subject
to community property laws where applicable.
The address of each person listed is in our care, at 21900 Burbank
Boulevard, Suite 270, Woodland Hills, California 91367, unless otherwise set
forth below such person's name.
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT
SHARES OF CLASS
- --------------------------------------------- ----------- ---------
DIRECTORS:
Colin Dyne (1).............................. 1,917,230 23.2%
Mark Dyne (2)............................... 815,512 9.8%
Kevin Bermeister (3)........................ 187,117 2.3%
Jonathan Burstein (4)....................... 185,788 2.3%
Brent Cohen (5)............................. 35,000 *
Michael Katz (6)............................ 15,000 *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Jonathan Markiles (7) ...................... 125,748 1.5%
Ronda Sallmen (8) .......................... 27,500 *
5% HOLDERS:
KG Investment, LLC
3151 East Washington Blvd.
Los Angeles, CA 90023...................... 2,390,000 29.9%
The Estate of Harold Dyne (9)............... 757,507 9.4%
Alan Saloner (10) .......................... 423,234 5.3%
Commerce Investment Group, LLC
5804 E. Slauson Ave., Commerce, CA 90046 ... 1,000,000 12.5%
Directors and executive officers as a
group (8 persons) (11) ..................... 3,308,895 37.0%
Page 22
<FN>
* Less than one percent.
(1) Includes 260,000 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable and 1,000,000 shares of
common stock owned by Commerce Investment Group, LLC which are voted by
Colin Dyne pursuant to a voting agreement.
(2) Includes 243,000 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable and 111,111 shares of
common stock reserved for issuance upon conversion of debt.
(3) Consists of 30,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(4) Includes 90,000 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(5) Consists of 35,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(6) Consists of 15,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(7) Includes 72,500 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable and 39,235 shares of
common stock reserved for issuance upon exercise of warrants which
currently are exercisable.
(8) Includes 27,500 shares of common stock reserved for issuance upon exercise
of stock options which are currently exercisable.
(9) Harold Dyne served as our President until his death in October 1999. The
estate of Mr. Dyne exercises beneficial ownership over shares which he
previously held. The shares consist of 659,507 shares of common stock held
by H&A Dyne Holdings, LP and 98,000 shares of common stock reserved for
issuance upon exercise of stock options which currently are exercisable.
(10) Consists of 156,586 shares of common stock held by Saloner Family
Investments Limited Partnership and 266,666 shares of common stock held by
Heathmount International Limited. We believe that Alan Saloner is a
principal executive officer and stockholder of Safcor, Inc., which is the
general partner of Saloner Family Investments Limited Partnership and that
Mr. Saloner is a principal executive officer and stockholder of Heathmount
International Limited.
(11) Includes 812,235 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable, 1,000,000 shares of
common stock owned by Commerce Investment Group, LLC which are voted by
Colin Dyne pursuant to a voting agreement, 111,111 shares of common stock
reserved for issuance upon conversion of debt and 39,235 shares of common
stock reserved for issuance upon exercise of warrants which currently are
exercisable.
</FN>
The information as to shares beneficially owned has been individually
furnished by the respective directors, named executive officers, and other
stockholders of the company, or taken from documents filed with the Securities
and Exchange Commission.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Executive
officers, directors and greater-than-ten percent stockholders are required by
Securities and Exchange Commission regulations to furnish the Company with all
Section 16(a) forms they file. Based solely on its review of the copies of the
forms received by it and written representations from certain reporting persons
that they have complied with the relevant filing requirements, the Company
believes that, during the year ended December 31, 2000, all of the Company's
executive officers, directors and greater-than-ten percent stockholders complied
with all Section 16(a) filing requirements with the exception of KG Investment,
LLC, Commerce Investment Group, LLC and Mark Dyne. KG Investment, LLC did not
report on a timely basis on a Form 3 and a Form 5 its acquisition of 2,390,000
shares of common stock in October 1998. Commerce Investment Group, LLC did not
report on a timely basis on a Form 3 and a Form 5 its acquisition of 1,000,000
shares of common stock in December 2000. Mark Dyne did not report on a timely
basis on a Form 5 the change in his beneficial ownership resulting from his
holding a convertible secured subordinated promissory note which is convertible
into 111,111 shares of common stock at the election of the holder. Commerce
Investment Group, LLC filed a Form 3 on April 25, 2001. Mark Dyne filed a Form 5
on April 30, 2001.
Page 23
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2002 Annual
Meeting of stockholders for inclusion in the Company's Proxy Statement and Proxy
form relating to such Annual Meeting must submit such proposal to the Company at
its principal executive offices by February 13, 2002. Any stockholder who
intends to present a proposal at the 2002 Annual Meeting of stockholders which
the stockholder does NOT intend to be included in the Company's Proxy Statement
and Proxy form for the 2002 Annual Meeting must submit such proposal to the
Company at its principal executive offices between March 17, 2002 and April 16,
2002.
INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman, LLP, independent public accountants, were selected by the
Board of Directors to serve as independent public accountants of the Company for
fiscal 2000 and have been selected by the Board of Directors to serve as
independent auditors for fiscal 2001. Representatives of BDO Seidman, LLP are
expected to be present at the Annual Meeting, and will be afforded the
opportunity to make a statement if they desire to do so, and will be available
to respond to appropriate questions from stockholders.
SOLICITATION OF PROXIES
It is expected that the solicitation of Proxies will be by mail. The cost
of solicitation by management will be borne by the Company. The Company will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material to
such beneficial owners. Proxies may also be solicited by certain of the
Company's directors and officers, without additional compensation, personally or
by mail, telephone, telegram or otherwise.
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2000, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO RONDA
SALLMEN, CHIEF FINANCIAL OFFICER, TAG-IT PACIFIC, INC., 21900 BURBANK BOULEVARD,
SUITE 270, WOODLAND HILLS, CALIFORNIA 91367.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Ronda Sallmen
Ronda Sallmen
Tag-It Pacific, Inc.,
21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367
May __, 2001
Page 24
APPENDIX "A"
AUDIT COMMITTEE CHARTER
OF
TAG-IT PACIFIC, INC.
1. ORGANIZATION
This charter (the "CHARTER") governs the operations of the audit committee
(the "AUDIT COMMITTEE") of the Board of Directors (the "BOARD") of Tag-It
Pacific, Inc. (the "COMPANY"). The Audit Committee shall review and reassess the
Charter at least annually and will amend the charter, if appropriate, with the
approval of the Board.
o COMPOSITION. The Committee shall be appointed by the Board and shall
be comprised of at least three directors, each of whom must be
independent of management and the Company. The Board will also select
a chairman for the Audit Committee. Each member of the Audit Committee
shall be considered independent if they have no relationship that may
interfere with the exercise of their independence from management and
the Company. In addition, each member of the Audit Committee must be
independent as defined by the American Stock Exchange. A member of the
Audit Committee will not be considered independent if the member (i)
is employed by the Company or any of its affiliates for the current
year or any of the past three years; (ii) accepts compensation from
the Company or any of its affiliates in excess of $60,000 during the
previous year, other than compensation for board service, benefits
under a tax-qualified retirement plan, or non-discretionary
compensation; (iii) is a member of the immediate family of an
individual who is, or has been in any of the past three years,
employed by the Company or any of its affiliates as an executive
officer; (iv) is a partner in, or a controlling stockholder or
executive officer of, any for-profit business organization to which
the Company made, or from which the Company received, payments (other
than those arising solely from investments in the Company's
securities) that exceed 5% of the Company's consolidated gross
revenues for that year, or $200,000, whichever is more, in any of the
past three years; or (v) is employed as an executive of another entity
where any of the Company's executives serve on that entity's
compensation committee.
o QUALIFICATIONS OF MEMBERS. All Audit Committee members shall be
financially literate and experienced in reading and understanding
financial statements, including the Company's balance sheet, income
statement and statement of cash flow (or will become able to do so
within a reasonable period of time after his or her appointment to the
Audit Committee). At least one member of the Company's Audit Committee
shall have past employment experience in finance or accounting or have
a professional certification in accounting or other comparable
experience.
2. STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board in fulfilling
their oversight responsibility to the stockholders, potential stockholders, the
investment community, and others relating to the Company's financial statements
and the financial reporting process, the systems of internal accounting and
financial controls, the internal audit function, the annual independent audit of
the Company's financial statements and the legal compliance and ethics programs
as established by management and the Board. In so doing, it is the
responsibility of the Audit Committee to maintain free and open communication
between the Audit Committee, the independent auditors, the internal auditors and
the management of the Company. In discharging its oversight role, the Audit
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company and
the power to retain outside counsel, or the other experts for this purpose.
3. RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and report the
results of its activities to the Board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial
Page A-1
statements. The Audit Committee in carrying out its responsibilities believes
its policies and procedures should remain flexible in order to best react to
changing conditions and circumstances. The Audit Committee should take the
appropriate actions to set the overall corporate "tone" for quality financial
reporting, sound business risk practices and ethical behavior.
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the Audit Committee may supplement
them as appropriate.
o The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate.
o The Audit Committee shall have a clear understanding with management
and the independent auditors that the independent auditors are
ultimately accountable to the Board and the Audit Committee, as
representatives of the Company's stockholders.
o The Audit Committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the
independent auditors. Annually, the Audit Committee shall review and
recommend to the board the selection of the Company's independent
auditors.
o The Audit Committee shall discuss with the auditors their independence
from management and the Company including any relationships that may
potentially impair their independence, as required by Independence
Standards Board Statement No. 1. The Audit Committee is responsible
for ensuring that the independent auditors submit on a periodic basis
to the Audit Committee a formal written statement delineating all
relationships between the independent auditors and the Company.
o The Audit Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation.
o The Audit Committee shall discuss with management, the internal
auditors and the independent auditors the adequacy and effectiveness
of the accounting and financial controls, including the Company's
system to monitor and manage business risk and legal and ethical
compliance programs.
o The Audit Committee shall meet separately with the internal auditors
and the independent auditors, with and without management present, to
discuss the results of their examinations.
o The Audit Committee shall review with financial management and the
independent auditors the Company's quarterly financial results and any
related press releases prior to the release of earnings.
o The Audit Committee shall meet with management and the independent
auditors and review and approve the interim financial statements and
quarterly report on Form 10-Q prior to the filing or distribution of
the quarterly report. In addition, the Audit Committee shall discuss
the results of the quarterly review and any other matters required to
be communicated to the Audit Committee by the independent auditors
under generally accepted auditing standards. The chair of the Audit
Committee may represent the entire Audit Committee for the purposes of
this review.
o The Audit Committee shall meet with management and the independent
auditors and review the financial statements to be included in the
Company's Annual Report on Form 10-K (or the annual report to
stockholders if distributed prior to the filing of Form 10-K),
including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgments and
the clarity of the disclosures in the financial statements. In
addition, the Audit Committee shall review and formally approve the
Company's Annual Report on Form 10-K prior
Page A-2
to filing or distribution. The Audit Committee shall discuss the
results of the annual audit and any other matters required to be
communicated to the Audit Committee by the independent auditors under
generally accepted auditing standards, including the matters required
to be communicated to audit committees pursuant to Statement of
Accounting Standards No. 61.
o The Audit Committee shall prepare an annual report to the Company's
stockholders as required by the Securities and Exchange Commission.
The report should be included in the Company's annual proxy statement.
Page A-3
TAG-IT PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of TAG-IT PACIFIC, INC., a Delaware
corporation (the "Company"), hereby appoints COLIN DYNE and RONDA SALLMEN, and
each of them, the proxy of the undersigned, with full power of substitution, to
attend, vote and act for the undersigned at the Company's Annual Meeting of
Stockholders (the "Annual Meeting"), to be held on June 15, 2001, and at any of
its postponements or adjournments, and in connection herewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
The Board of Directors recommends a WITH vote on Proposal 1 and a FOR vote
on Proposal 2.
1. ELECTION OF CLASS I DIRECTORS, as provided in the Company's Proxy
Statement:
___ WITH ___ WITHOUT Authority to vote for the nominees
listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A NOMINEE, LINE THROUGH OR
OTHERWISE STRIKE OUT THE NAME OF THE NOMINEE BELOW)
Kevin Bermeister Brent Cohen
2. The approval of the amendment to the Company's 1997 Stock Plan to
increase the maximum number of shares of Common Stock that may be
issued pursuant to awards granted under the plan.
FOR ______ AGAINST _______ ABSTAIN ________
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that the proxy holders may
lawfully do by virtue of this Proxy. AS TO ANY OTHER BUSINESS THAT MAY PROPERLY
COME BEFORE THE ANNUAL MEETING AND ANY OF ITS POSTPONEMENTS OR ADJOURNMENTS, THE
PROXY HOLDER IS AUTHORIZED TO VOTE IN ACCORDANCE WITH HIS BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE CLASS I DIRECTORS NAMED, THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S 1997 STOCK PLAN AND AS THE PROXY HOLDER SHALL DEEM ADVISABLE ON ANY
OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING, UNLESS OTHERWISE
DIRECTED.
Page 1
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated May __, 2001 relating to the
Annual Meeting.
Date: __________________________, 2001
---------------------------------------
---------------------------------------
Signature(s) of Stockholder(s)
(See Instructions Below)
The above signature(s) should correspond exactly
with the name(s) of the Stockholder(s) appearing
on the Stock Certificate. If stock is jointly
held, all joint owners should sign. When signing
as attorney, executor, administrator, trustee or
guardian, please give full title as such. If
signer is a corporation, please sign the full
corporation name, and give title of signing
officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF TAG-IT PACIFIC, INC.
Page 2
TAG-IT PACIFIC, INC.
AMENDED AND RESTATED
1997 STOCK PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1997 Stock Plan (the "Plan") is to provide
incentives and rewards to selected eligible directors, officers, employees and
consultants of Tag-It Pacific, Inc. (the "Company") or its subsidiaries in order
to assist the Company and its subsidiaries in attracting, retaining and
motivating those persons by providing for or increasing the proprietary
interests of those persons in the Company, and by associating their interests in
the Company with those of the Company's stockholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") whose members shall
serve at the pleasure of the Board. If administration is delegated to the
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan as may be
adopted from time to time by the Board.
The Board shall have all the powers vested in it by the terms of the
Plan, including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Awards without constituting termination of their employment for purposes of
their Awards; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and (vii) to make
any and all other determinations which it determines to be necessary or
advisable in the administration of the Plan. The Board shall have full power and
authority to administer and interpret the Plan and to adopt, amend and revoke
such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Board
deems necessary or advisable. The Board's interpretation of the Plan, and all
actions taken and determinations made by the Board pursuant to the powers vested
in it hereunder, shall be conclusive and binding on all parties concerned,
including the Company, its stockholders, any participants in the Plan and any
other employee of the Company or any of its subsidiaries.
Page 1
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company, or any of its subsidiaries (a "Participant"), shall be eligible to be
considered for the grant of Awards under the Plan.
4. AWARDS.
(a) COMMON STOCK AND DERIVATIVE SECURITY AWARDS. Awards authorized
under the Plan shall consist of any type of arrangement with a Participant that
is not inconsistent with the provisions of the Plan and that, by its terms,
involves or might involve or be made with reference to the issuance of (i)
shares of the Common Stock, $.001 par value per share, of the Company (the
"Common Stock") or (ii) a "derivative security" (as that term is defined in Rule
16a-1(c) of the Rules and Regulations of the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, as the same may be
amended from time to time) with an exercise or conversion price related to the
Common Stock or with a value derived from the value of the Common Stock.
(b) TYPES OF AWARDS. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) CONSIDERATION. Common Stock may be issued pursuant to an Award for
any lawful consideration as determined by the Board, including, without
limitation, a cash payment, services rendered, or the cancellation of
indebtedness.
(d) GUIDELINES. The Board may adopt, amend or revoke from time to time
written policies implementing the Plan. Such policies may include, but need not
be limited to, the type, size and term of Awards to be made to participants and
the conditions for payment of such Awards.
(e) TERMS AND CONDITIONS. Subject to the provisions of the Plan, the
Board, in its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code") (an "Incentive Stock Option");
Page 2
(ii) a provision permitting the recipient of such Award to pay
the purchase price of the Common Stock or other property issuable
pursuant to such Award, or to pay such recipient's tax withholding
obligation with respect to such issuance, in whole or in part, by
delivering previously owned shares of capital stock of the Company
(including "pyramiding") or other property, or by reducing the number
of shares of Common Stock or the amount of other property otherwise
issuable pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of
benefits pursuant to the Award, or terminating the Award, either
automatically or in the discretion of the Board, upon the occurrence of
specified events, including, without limitation, a change of control of
the Company, an acquisition of a specified percentage of the voting
power of the Company, the dissolution or liquidation of the Company, a
sale of substantially all of the property and assets of the Company or
an event of the type described in Section 7 of the Plan.
(f) SUSPENSION OR TERMINATION OF AWARDS. If the Company believes that a
Participant has committed an act of misconduct as described below, the Company
may suspend the Participant's rights under any then outstanding Award pending a
determination by the Board. If the Board determines that a Participant has
committed an act of embezzlement, fraud, nonpayment of any obligation owed to
the Company or any subsidiary, breach of fiduciary duty or deliberate disregard
of the Company's rules resulting in loss, damage or injury to the Company, or if
a Participant makes an unauthorized disclosure of trade secret or confidential
information of the Company, engages in any conduct constituting unfair
competition, or induces any customer of the Company to breach a contract with
the Company, neither the Participant nor his or her estate shall be entitled to
exercise any rights whatsoever with respect to such Award. In making such
determination, the Board shall act fairly and shall give the Participant a
reasonable opportunity to appear and present evidence on his or her behalf to
the Board.
(g) MAXIMUM GRANT OF AWARDS TO ANY PARTICIPANT. No Participant shall
receive Awards representing more than 25% of the aggregate number of shares of
Common Stock that may be issued pursuant to all Awards under the Plan as set
forth in Section 5 hereof.
Page 3
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Stock Options) shall not exceed an
aggregate of 2,077,500 shares of Common Stock, subject to adjustment as provided
in Section 7 of the Plan. Shares of Common Stock subject to the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. Any shares of Common Stock subject to an Award which for any reason
expires or is terminated unexercised as to such shares shall again be available
for issuance under the Plan. For purposes of this Section 5, the aggregate
number of shares of Common Stock that may be issued at any time pursuant to
Awards granted under the Plan shall be reduced by: (i) the number of shares of
Common Stock previously issued pursuant to Awards granted under the Plan, other
than shares of Common Stock subsequently reacquired by the Company pursuant to
the terms and conditions of such Awards and with respect to which the holder
thereof received no benefits of ownership, such as dividends; and (ii) the
number of shares of Common Stock which were otherwise issuable pursuant to
Awards granted under this Plan but which were withheld by the Company as payment
of the purchase price of the Common Stock issued pursuant to such Awards or as
payment of the recipient's tax withholding obligation with respect to such
issuance.
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable
in cash, shares of Common Stock or any combination thereof. The Board may, upon
request of a Participant, determine that all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common
Stock or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
as a class (other than cash dividends), then the Board may, but it shall not be
required to, make such equitable adjustments to the Plan and the Awards
thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under the Plan, (ii) the maximum number and
type of shares or other securities that may be issued pursuant to Incentive
Stock Options and other Awards thereafter granted under the Plan; and (iii) the
maximum number of securities with respect to which Awards may thereafter be
granted to any Participant in any fiscal year) as the Board in its sole
discretion determines appropriate, including any adjustments in the maximum
number of shares referred to in Section 5 of the Plan. Such adjustments shall be
conclusive and binding for all purposes of the Plan.
Page 4
8. MISCELLANEOUS PROVISIONS.
(a) DEFINITIONS. As used herein, "subsidiary" means any current or
future corporation which would be a "subsidiary corporation," as that term is
defined in Section 424(f) of the Code, of the Company; and the term "or" means
"and/or."
(b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Award, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
(c) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) ASSIGNMENT OR TRANSFER. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) WITHHOLDING TAXES. The Company shall have the right to deduct from
all Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
the restrictions imposed by any and all governmental authorities.
(g) NO RIGHTS TO AWARD. No Participant or other person shall have any
right to be granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or any of its subsidiaries or shall
interfere with or restrict in any way the rights of the Company or any of its
subsidiaries, which are hereby reserved, to discharge a Participant at any time
for any reason whatsoever, with or without good cause.
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(h) COSTS AND EXPENSES. The costs and expenses of administering the
Plan shall be borne by the Company and not charged to any Award nor to any
Participant receiving an Award.
(i) FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
9. AMENDMENTS AND TERMINATION.
(a) AMENDMENTS. The Board may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any Awards theretofore made
under the Plan. However, with the consent of the Participant affected, the Board
may amend outstanding agreements evidencing Awards under the Plan in a manner
not inconsistent with the terms of the Plan.
(b) STOCKHOLDER APPROVAL. To the extent that Section 422 of the Code,
other applicable law, or the rules, regulations, procedures or listing agreement
of any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the stockholders of the Company, no such
amendment shall be effective unless and until it is approved by the stockholders
in such a manner and to such a degree as is required.
(c) TERMINATION. Unless the Plan shall theretofore have been terminated
as above provided, the Plan (but not the awards theretofore granted under the
Plan) shall terminate on and no awards shall be granted after October 1, 2007.
10. EFFECTIVE DATE.
The Plan is effective on October 1, 1997, the date on which it was
adopted by the Board of Directors of the Company and the holders of the majority
of the Common Stock of the Company.
11. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed
and governed by the laws of the State of Delaware applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
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