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
TAG-IT PACIFIC, INC.
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(Name of Registrant as Specified in Its Charter)
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(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)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(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 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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| | Fee paid previously with preliminary materials:
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| | 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:
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(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
TO BE HELD JUNE 16, 1999
-----------
TO OUR STOCKHOLDERS:
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
Tag-It Pacific, Inc. (the "Company") will be held at the Holiday Inn, 170 North
Church Lane, Los Angeles, California 90049, on Wednesday, June 16, 1999 at 10:30
a.m., Pacific Daylight Savings time. The Annual Meeting is being held for the
following purposes:
1. To elect two Class I Directors to hold office for two years and until
their respective successors have been elected. The persons nominated
by the Board of Directors of the Company (Messrs. Brent Cohen and
Kevin Bermeister) are described in the accompanying Proxy Statement;
2. To elect three Class II Directors to hold office for three years and
until their respective successors have been elected. The persons
nominated by the Board of Directors of the Company (Messrs. Harold
Dyne, Michael Katz and Paul Markiles) are described in the
accompanying Proxy Statement;
3. 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 562,500 shares to
1,177,500 shares;
4. To approve an amendment to the Company's Certificate of Incorporation
to increase the Company's authorized Common Stock, par value $.001 per
share, by 15,000,000 shares to an aggregate of 30,000,000 shares; and
5. To transact such other business as may properly come before the Annual
Meeting or any of its adjournments or postponements.
Only stockholders of record of the Common Stock of the Company at the close
of business on May 7, 1999 are entitled to notice of, and to vote at, the Annual
Meeting and at any of its adjournments or postponements.
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 mark, sign and return the enclosed Proxy as promptly as possible in the
postage prepaid envelope enclosed for that purpose. Any stockholder of record
attending the Annual Meeting may vote in person, even though he or she has
returned a Proxy. Any stockholder whose shares are held in the name of a bank,
broker or other holder of record must obtain a proxy, executed in the
stockholder's favor, from the holder of record to be able to vote in person at
the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ FRANCIS SHINSATO
-----------------------------------
Francis Shinsato
CHIEF FINANCIAL OFFICER
Los Angeles, California
May 26, 1999
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE 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.
TAG-IT PACIFIC, INC.
3820 SOUTH HILL STREET
LOS ANGELES, CALIFORNIA 90037
(323) 234-9606
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Tag-It Pacific, Inc., a Delaware
corporation (the "Company"), for use at the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at the Holiday Inn, 170 North Church Lane, Los
Angeles, California 90049, on Wednesday, June 16, 1999 at 10:30 a.m., Pacific
Daylight Savings time, and at any of its adjournments or postponements, for the
purposes set forth herein and in the attached Notice of Annual Meeting of
Stockholders. Accompanying this Proxy Statement is the Board of Directors' Proxy
for the Annual Meeting, which you may use to indicate your vote on the proposals
described in this Proxy Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will,
unless otherwise directed by the stockholders, be voted in accordance with the
recommendations of the Board of Directors set forth in this Proxy Statement. A
stockholder who submits the enclosed proxy will not limit his or her right to
vote at the Annual Meeting if the stockholder later decides to attend in person.
A stockholder whose shares are held in the name of a bank, broker or other
holder of record must obtain a proxy, executed in the stockholder's favor, from
the holder of record to be able to vote in person at the Annual Meeting. A
stockholder of record may revoke his or her Proxy at any time before it is voted
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 his or
her shares in person.
The close of business on May 7, 1999 has been fixed as the record date for
the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or at any adjournments or postponements of the Annual Meeting. At
the record date, 6,726,677 shares of Common Stock, par value $.001 per share
(the "Common Stock"), were outstanding. The Common Stock is the only outstanding
class of capital stock of the Company entitled to vote at the Annual Meeting.
It is anticipated that this Proxy Statement and the accompanying Proxy will
be mailed to stockholders on or about May 26, 1999.
VOTING PROCEDURES
A stockholder is entitled to cast one vote for each share of Common Stock
held on the record date on all matters to be considered at the Annual Meeting. A
majority of the outstanding shares of Common Stock must be represented in person
or by proxy at the Annual Meeting in order to constitute a quorum for the
transaction of business. 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 three nominees for election as Class II directors at the Annual
Meeting who receive the highest number of affirmative votes will be elected. The
amendment of the 1997 Stock Plan to increase by 615,000 the number of shares of
Common Stock that may be issued pursuant to awards under the 1997 Stock Plan
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. The amendment of the Company's Certificate of
Incorporation to increase the Company's authorized Common Stock by 15,000,000
shares will require the affirmative vote of a majority of the votes entitled to
be cast by the holders of all outstanding shares of Common Stock. Abstentions
and broker non-votes will be included in the number of shares present at the
Annual Meeting for the purpose of determining the presence of a quorum.
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
In accordance with the Certificate of Incorporation of the Company, the
Board of Directors is divided into three classes. At each annual meeting of
stockholders, directors constituting one class are elected, each for a
three-year term. The term of the initial Class I directors was scheduled to
terminate on the date of the Company's 1998 Annual Meeting of Stockholders, and
the term of the initial Class II directors is scheduled to terminate on the date
of the Annual Meeting. The Company did not hold a 1998 Annual Meeting of
Stockholders. Accordingly, two Class I directors and three Class II 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 or at any of
its postponements or adjournments, the Proxies 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.
1. The Board of Directors proposes the election of the following
nominees as Class I directors:
Kevin Bermeister
Brent Cohen
If elected, each nominee for Class I director is expected to serve until
the 2001 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.
2. The Board of Directors proposes the election of the following
nominees as Class II directors:
Harold Dyne
Michael Katz
Paul Markiles
If elected, each nominee for Class II director is expected to serve until
the 2002 Annual Meeting of Stockholders. The three nominees for election as
Class II directors at the Annual Meeting who receive the highest number of
affirmative votes will be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE NOMINEES LISTED ABOVE.
Page 2
INFORMATION WITH RESPECT TO NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of May
15, 1999.
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
---- --- --------- --------
NOMINEES:
CLASS I DIRECTORS
(terms to expire in 2001)
Kevin Bermeister (1).............. 38 1999 Director
Brent Cohen (1)................... 40 1998 Director
CLASS II DIRECTORS
(terms to expire in 2002)
Harold Dyne (2)................... 66 1997 President and Director
Michael Katz...................... 57 1998 Director
Paul Markiles (3)................. 65 1998 Director
CONTINUING DIRECTORS:
CLASS III DIRECTORS
(terms to expire in 2000)
Mark Dyne (2)..................... 38 1997 Chairman of the Board
Colin Dyne (2).................... 35 1997 Chief Executive Officer
and Director
OTHER EXECUTIVE OFFICERS:
Francis Shinsato.................. 48 Chief Financial Officer
Jonathan Markiles (3)............. 34 Executive Vice President,
Strategic Planning and
Business Development,
and Secretary
Jonathan Burstein (4)............. 32 Executive Vice President,
Sales and Marketing
- ----------------------
(1) Member of the Compensation Committee and the Audit Committee.
(2) Colin Dyne and Mark Dyne are brothers, and Harold Dyne is their Father.
(3) Jonathan Markiles is the son of Paul Markiles.
(4) Jonathan Burstein is Harold Dyne's son-in-law and Colin Dyne's and Mark
Dyne's brother-in-law.
KEVIN BERMEISTER has served as a director of the Company since May 1999.
Mr. Bermeister currently is President and a director of Brilliant Digital
Entertainment, Inc., positions he has held since 1996. Mr. Bermeister is a
director and equity owner of Sega Ozisoft Pty. Ltd. and previously served as its
Co-Chief Executive Officer. Mr. Bermeister helped found Sega Ozisoft in 1982.
Mr. Bermeister also is a director of Packard Bell NEC Australia Pty. Ltd.,
Jacfun Pty. Ltd. and Virgin Interactive Entertainment Limited.
BRENT COHEN has served as a director of the Company since 1998. From
October 1998 to the present, Mr. Cohen has been pursuing potential business
opportunities. From 1996 to October 1998, Mr. Cohen served as President of the
Consumer Products and International divisions of Packard Bell NEC, Inc. From
1987 to 1996, Mr. Cohen served in various positions with Packard Bell,
culminating with the position of Chief Financial Officer and Chief Operating
Officer. Prior to joining Packard Bell NEC, Inc., Mr. Cohen was employed with
Ernst & Young in their management consulting practice. Mr. Cohen has an MBA and
is a Chartered Accountant in the Republic of South Africa.
Page 3
HAROLD DYNE has served as President and a director of the Company since
October 1997. Mr. Dyne, founder of Pacific Trim & Belt, Inc., a subsidiary of
the Company, has served as Chief Executive Officer of Pacific Trim since it was
founded in 1987. Mr. Dyne has been involved in the apparel industry since 1958,
when he founded the Union Fasteners Corporation in South Africa. In 1971, he
formed a joint venture with YKK Zipper Manufacturing Company in Southern Africa.
MICHAEL KATZ has served as a director of the Company since 1998. From 1987
to the present, Mr. Katz has served as President, Chief Operating Officer and
director of Transducer Controls Corporation, a manufacturer of position and
pressure transducers. 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 September 1996, Mr. Katz
has held the position of Chairman of the Board of Filtomat, Inc., a manufacturer
of automatic industrial water filters.
PAUL MARKILES has served as a director of the Company since 1998. Prior to
his retirement in 199l, Mr. Markiles served as President and Chief Executive
Officer of Windshields America, Inc., a subsidiary of South African Breweries.
Mr. Markiles was responsible for the founding and expansion of Windshields
America into a national chain of over 120 retail autoglass stores.
MARK DYNE has served as Chairman of the Board of Directors of the Company
since September 1997. Mr. Dyne currently is Chairman of the Board of Directors
and Chief Executive Officer of Brilliant Digital Entertainment, Inc., a position
he has held since October 1996. Mr. Dyne is a director and equity owner of Sega
Ozisoft Pty. Ltd. and previously served as its Co-Chief Executive Officer. Mr.
Dyne helped found Sega Ozisoft in 1982. Sega Ozisoft, now a majority owned
subsidiary of Infogrames Entertainment (France), is a computer software
distributor for many leading publishers including, among others, Virgin
Interactive, Accolade, Access, Codemasters and Eidos. Mr. Dyne currently is a
director of Monto Holdings Pty. Ltd. and a co-owner of Packard Bell NEC
Australia Pty. Ltd. Monto is a private investment holding company and Packard
Bell NEC Australia is one of the leading manufacturers and distributors of
personal computers through the Australian mass merchant channel. From June 1995
through May 1997, Mr. Dyne served as a Co-Chief Executive Officer of Sega
Enterprises (Australia) Pty. Ltd., a theme park developer. Sega Enterprises is
owned jointly by Mr. Dyne, Mr. Bermeister, Sega Enterprises Japan, Mitsubishi
Corp. and Mitsui Corp. Mr. Dyne also serves on the Board of Directors of Virgin
Interactive Entertainment Limited, a distributor of computer software programs
and video games, and has an equity interest therein. Mr. Dyne is a member of the
Board of Directors of Sega Gaming Technologies, Inc., a Nevada company in the
business of producing multiplayer casino equipment.
COLIN DYNE has served as Chief Executive Officer and a director of the
Company since October 1997. Mr. Dyne founded Tag-It, Inc., a subsidiary of the
Company, in 1991 with his father, Harold Dyne, and has served as its President
since inception. Prior to 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.
FRANCIS SHINSATO was appointed Chief Financial Officer of the Company in
November 1997. Prior to joining the Company, from February 1997 through October
1997, Mr. Shinsato was an independent accounting and information systems
consultant. From January 1996 until February 1997, Mr. Shinsato was the
Controller of Centon Electronics, Inc., a privately held computer memory
manufacturer where he was responsible for financial statement preparation and
credit and collection management. From 1985 to 1995, Mr. Shinsato served as the
Vice President of Finance and Controller of Newport Electronics, Inc. and
oversaw all financial, accounting and management information systems. Newport
Electronics, Inc. is a designer and manufacturer of test and measurement
equipment and was a publicly traded company until 1992. Mr. Shinsato is a
certified public accountant.
JONATHAN MARKILES is Executive Vice President, Strategic Planning and
Business Development, and Secretary of the Company. Mr. Markiles joined Tag-It,
Inc. in May 1994 as its General Manager where he has been responsible for
production, distribution and international operations. Prior to joining Tag-It,
Inc., Mr. Markiles received his M.B.A. 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.
Page 4
JONATHAN BURSTEIN is Executive Vice President, Sales and Marketing of the
Company. From 1987 until the present, Mr. Burstein has been employed by Pacific
Trim & Belt, Inc., where he has been responsible for managing many of Pacific
Trim's largest customer accounts and supervising Pacific Trim's sales force. Mr.
Burstein also has been responsible for implementing systems and protocols in the
purchasing department as well as developing and managing Pacific Trim's key
supply lines. In August 1998, Mr. Burstein relocated to the Company's New York
office to assist the Company in establishing a greater presence in the eastern
region of the country.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 4 meetings and acted 2 additional times by
unanimous written consent during fiscal 1998. No director attended less than 75%
of all the meetings of the Board of Directors and those committees on which he
or she served in fiscal 1998.
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee currently consists of Messrs. Bermeister and Cohen. The
Audit Committee recommends the engagement of the Company's independent public
accountants, reviews the scope of the audit to be conducted by such independent
public accountants and meets with the independent public accountants and the
Chief Financial Officer of the Company to review matters relating to the
Company's financial statements, the Company's accounting principles and its
system of internal accounting controls, and the committee reports its
recommendations as to the approval of the financial statements of the Company to
the Board of Directors. One meeting of the Audit Committee was held during
fiscal 1998.
The Compensation Committee currently consists of Messrs. Bermeister and
Cohen. The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering the Company's stock option and executive
incentive compensation plans. The Compensation Committee held one meeting during
fiscal 1998.
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company currently are paid $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. Diana Maranon, a director of the
Company from January 1998 until May 1999, and Messrs. Mark Dyne, Cohen, Katz and
Markiles, all nonemployee directors, also received options to purchase 25,000,
78,000, 20,000, 15,000 and 15,000 shares of Common Stock, respectively, in
fiscal 1998. Directors also are reimbursed for their reasonable travel expenses
incurred in attending Board or committee meetings.
Page 5
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to
each of the other four 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 during the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
NUMBER OF
OTHER SECURITIES
FISCAL YEAR ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION ENDED(1) SALARY COMPENSATION(2) OPTIONS(3)
--------------------------- ----------------- --------- ------------- ------------
Colin Dyne..................... December 31, 1998 $ 229,251 $ 23,040 98,000
Chief Executive Officer December 31, 1997 $ 229,251 $ 22,773 --
August 31, 1997 $ 227,340 $ 22,773 --
Harold Dyne.................... December 31, 1998 $ 214,234 $ 30,156 98,000
President December 31, 1997 $ 214,814 $ 24,832 --
August 31, 1997 $ 214,334 $ 24,832 --
Jonathan Burstein.............. December 31, 1998 $ 167,979 $ 26,347 30,000(4)
Executive Vice President, December 31, 1997 $ 152,981 $ 12,393 8,000(5)
Sales and Marketing August 31, 1997 $ 152,981 $ 12,393 --
Jonathan Markiles.............. December 31, 1998 $ 111,497 -- 20,000(6)
Executive Vice President, December 31, 1997 $ 82,897 -- 8,000(5)
Strategic Planning and August 31, 1997 $ 82,897 -- --
Business Development,
and Secretary
Francis Shinsato............... December 31, 1998 $ 98,760 $ 2,096 30,000(7)
Chief Financial Officer December 31, 1997 $ 11,874 -- 20,000(5)
August 31, 1997 -- -- --
- ----------
(1) The Company changed its fiscal year end from August 31 to December 31,
effective December 31, 1998.
(2) Consists of car and expense allowances and medical and disability
insurance.
(3) In October 1998, all of the Company's then outstanding stock options were
repriced under the Company's option repricing program. For a description of
the terms of the option repricing program, see "Report of the Compensation
Committee on Repricing of Stock Options" below.
(4) Consists of options to purchase 22,000 shares of Common Stock granted on
October 1998, and options to purchase 8,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
(5) These options were cancelled in October 1998 in connection with the grant
of a repriced option under the Company's option repricing program.
(6) Consists of options to purchase 12,000 shares of Common Stock granted on
October 1998, and options to purchase 8,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
(7) Consists of options to purchase 10,000 shares of Common Stock granted on
October 1998, and options to purchase 20,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
Page 6
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant of
stock options made during the fiscal year ended December 31, 1998 to the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTION IN FISCAL BASE EXPIRATION
NAME GRANTED YEAR(1) PRICE(2) DATE
---- ---------- ---------- ----------- ----------
Colin Dyne......................... 98,000(3) 31.2% $ 1.30 10/10/08
Harold Dyne........................ 98,000(3) 31.2% $ 1.30 10/10/08
Jonathan Burstein.................. 8,000(4) -- $ 1.30 10/3/07
22,000(3) 7.0% $ 1.30 10/10/08
Jonathan Markiles.................. 8,000(4) -- $ 1.30 10/3/07
12,000(3) 3.8% $ 1.30 10/10/08
Francis Shinsato................... 20,000(5) -- $ 1.30 10/3/07
10,000(3) 3.2% $ 1.30 10/10/08
- ----------
(1) Options covering an aggregate of 301,000 shares of Common Stock were
granted to employees during the fiscal year ended December 31, 1998. In
October 1998, options covering an aggregate of 170,000 shares of Common
Stock that were granted to eligible persons before October 1998 were
repriced under the Company's option repricing program. The percentages are
based only on options to purchase 301,000 shares initially granted to
employees in fiscal 1998, and do not account for replacement options
granted in fiscal 1998 in connection with the Company's option repricing
program.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(3) This option vested immediately on the date of grant.
(4) This option consists of a repriced option granted in October 1998 under the
Company's option repricing program to replace an existing option to
purchase the same number of shares of Common Stock at a higher exercise
price granted in October 1997. This option vests and becomes exercisable as
follows: 25% vested on April 15, 1999, 25% vests on January 1, 2000, and
25% vests on each of October 3, 2001 and 2002.
(5) This option consists of a repriced option granted in October 1998 under the
Company's option repricing program to replace an existing option to
purchase the same number of shares of Common Stock at a higher exercise
price granted in October 1997. This option vested and became exercisable on
April 15, 1999.
Page 7
STOCK OPTIONS HELD AT FISCAL YEAR END
The following table sets forth, for those Named Executive Officers who held
stock options at fiscal year end, certain information regarding 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 Common Stock on the American Stock Exchange on December 31, 1998
($4.375 per share). No stock options were exercised by any Named Executive
Officer during fiscal 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
- ---- -------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Colin Dyne...................... 98,000 -0- $ 301,350 $ 0
Harold Dyne..................... 98,000 -0- $ 301,350 $ 25,000
Jonathan Burstein............... 22,000 8,000 $ 67,650 $ 24,600
Jonathan Markiles............... 12,000 8,000 $ 36,900 $ 24,600
Francis Shinsato................ 10,000 20,000 $ 30,750 $ 61,500
- ------------
(1) Based on a closing price of $4.375 per share of Common Stock on December
31, 1998, all options were in-the-money at fiscal year end.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
None of the Named Executive Officers have employment agreements with the
Company and their employment may be terminated at any time.
STOCK OPTION PLAN
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 attract, retain and
motivate certain key employees of the Company and its subsidiaries by giving
them incentives which are linked directly to increases in the value of the
Common Stock of the Company. Each director, officer, employee or consultant of
the Company or any of its subsidiaries is eligible to be considered for the
grant of awards under the 1997 Plan. The maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the 1997 Plan is
562,500, 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, 1998, 500 shares of Common Stock remained available for
grant of awards to eligible participants under the 1997 Plan.
Page 8
REPORT OF THE COMPENSATION COMMITTEE ON REPRICING OF STOCK OPTIONS
During October 1998, the Compensation Committee of the Board of Directors
approved a stock option repricing program. Under the program, each holder of
stock options granted under the Company's 1997 Stock Plan before October 10,
1998, including directors and Named Executive Officers, was entitled to exchange
their existing stock option for a repriced stock option to purchase the same
number of shares at an exercise price of $1.30 per share. The new exercise price
was lower than the exercise price under all of the existing stock options and
was higher than the then sales price of $1.1875 per share of Common Stock. As a
condition to receiving this more favorable exercise price, each option holder
who elected to participate in the program was required to agree to a less
favorable vesting schedule. With the exception of options held by the Chief
Financial Officer and one other employee, under the repriced options, any shares
of Common Stock which had already vested under the existing stock option could
not be exercised until April 15, 1999, and any shares under the existing stock
option which were scheduled to vest on October 3, 1999 do not vest under the
repriced option until January 1, 2000. Under the repriced options granted to the
Chief Financial Officer and one other employee, any shares of Common Stock which
had already vested under the existing stock option could not be exercised until
April 15, 1999, at which time the repriced option vested in full. Other than the
lower exercise price and the changes to the vesting schedule, each new stock
option issued under the repricing program has terms substantially equivalent to
the terms of the surrendered option, including the same number of shares and
expiration date. Options to purchase a total of 170,000 shares of Common Stock
were eligible to participate in the program, all of which were exchanged by the
holders thereof for repriced stock options.
The Compensation Committee approved the stock option repricing program as a
result of the significant reduction in the price of the Company's Common Stock.
The Committee determined that the Company's existing stock options no longer
provided meaningful incentive to the option holders to remain in the employ of
the Company and to maximize shareholder value. The existing stock options had an
exercise price of $3.20 per share, which exercise price exceeded the trading
price of the Company's Common Stock for a substantial majority of the time from
the effective date of the Company's initial public offering in January 1998
until the date the option repricing program was approved. The Committee
determined that the exchange of new stock options with a lower exercise price
for the Company's existing stock options would once again provide incentive to
the Company's officers, directors and employees to continue to provide services
to the Company and to maximize shareholder value.
COMPENSATION COMMITTEE
Diana Maranon
Brent Cohen
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 (the "SEC"). Executive officers, directors and greater-than-ten
percent stockholders are required by SEC 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, 1998, all the
Company's executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements with the
exception of Diana Maranon, Colin Dyne, Harold Dyne, Mark Dyne, Jonathan
Burstein and KG Investment, LLC. Ms. Maranon did not report her purchase in
January 1998 of 17,000 shares of Common Stock. Ms. Maranon reported her purchase
of these shares on a Form 5 filed in February 1999. Colin Dyne, Harold Dyne and
Mark Dyne each filed a Form 5 in February 1999 which overstated by 2,000 shares
the number of shares underlying stock options granted to each of these executive
officers in October 1998. Jonathan Burstein filed a Form 5 in February 1999
which overstated by 5,000 shares the number of shares underlying stock options
granted to Mr. Burstein in October 1998. KG Investment, LLC did not report on a
Form 3 its acquisition in October 1998 of 2,390,000 shares of Common Stock,
which represents more than ten percent of the Company's Common Stock.
Page 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
D.P.S. Associates, a general partnership in which Harold Dyne is a general
partner, is the lessor of the Company's executive offices located at 3820 South
Hill Street in Los Angeles, California pursuant to a Lease Agreement with
Pacific Trim & Belt, Inc., a subsidiary of the Company. Harold Dyne is the
President and a director of the Company and the Chief Executive Officer of
Pacific Trim. The lease with D.P.S. Associates provides for a base rent of
$9,072 per month and expires on April 30, 2000.
Certain affiliated parties have made loans to the Company's subsidiaries to
be used for general working capital purposes, all of which are evidenced by
promissory notes executed by the respective subsidiary and are due and payable
on the fifteenth day following the date written demand for payment is made by
the holder thereof. The loans include (i) a loan by Harold Dyne in June 1991 of
$10,000 to Tag-It, Inc. at an interest rate of 10.0% per annum, (ii) a loan by
Mark Dyne in January 1997 of $15,000 to Tag-It, Inc. at an interest rate of 7.5%
per annum, (iii) a loan by Monto Holdings Pty. Ltd. in February 1996 of $300,000
to AGS Stationery, Inc. at an interest rate of 7.5% per annum, which loan was
repaid in January 1998, (iv) a loan by Monto Holdings in January 1995 of
$124,626 to Pacific Trim at an interest rate of 10.0% per annum, (v) a loan by
NPM Investments, Inc. in August 1996 of $715,000 to Tag-It, Inc. at an interest
rate of 7.5% per annum, which loan is secured by all of the assets of Tag-It,
Inc., (vi) a loan by Pacific Western, Inc. in May 1996 of $16,000 to Tag-It,
Inc. at an interest rate of 7.5% per annum, $13,500 of which was repaid as of
December 31, 1998, and (vii) a loan by Pacific Western, Inc. in June 1996 of
$6,000 to Pacific Trim at an interest rate of 7.5% per annum, which loan was
repaid in fiscal 1997. Mark Dyne, the Chairman of the Board of the Company holds
a significant equity interest in Monto Holdings, NPM Investments, Inc. and
Pacific Western, Inc. Alan Saloner, a significant stockholder of the Company,
holds a significant equity interest in NPM Investments, Inc. Kevin Bermeister, a
director of the Company, holds an equity interest in Monto Holdings.
In August 1996, NPM Investments, Inc. made an additional loan of $875,000
to Tag-It, Inc., without interest, pursuant to a convertible secured promissory
note which was secured by all of the assets of Tag-It, Inc. Mark Dyne and Alan
Saloner hold significant equity interests in NPM Investments, Inc. The proceeds
of the loan were used for working capital purposes. In October 1997, the note
was converted by NPM Investments, Inc. into shares of common stock of Tag-It,
Inc., Tag-It Printing & Packaging Ltd. and AGS Stationery, which shares were
exchanged for an aggregate of 384,402 shares of Common Stock of the Company in
January 1998.
In September and October 1997, NPM Investments, Inc. made an additional
loan of $126,972 to Tag-It, Inc. to fund expenses incurred in connection with
the Company's initial public offering. The loan, which was repaid in July 1998,
had an interest rate of 7.5% per annum and was due and payable on the fifteenth
day following the date of delivery by NPM Investments, Inc. of written demand
therefor.
Effective October 15, 1998, $400,000 of indebtedness owed by the Company's
subsidiaries to NPM Investments, Inc. was converted into 266,666 shares of
Common Stock, which shares were issued 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 the indebtedness owed to NPM
Investments, Inc.
In September 1996, Harold Dyne borrowed $100,000 from Mercantile National
Bank, which loan was guaranteed by Tag-It, Inc. In September 1996, the $100,000
borrowed by Mr. Dyne was lent to Tag-It, Inc. for working capital purposes at
the same interest rate payable on Mr. Dyne's loan from Mercantile National Bank.
The loan from Mr. Dyne to Tag-It, Inc. was due and payable on the fifteenth day
following the date written demand for payment was made by Mr. Dyne at any time
after December 31, 1998. The loan was repaid in July 1998.
In October and November 1997, Monto Holdings made additional loans of
$12,000 to AGS Stationery and $110,000 to Pacific Trim, respectively, to fund
expenses incurred in connection with the Company's initial public offering. The
loans bear simple interest at a rate of 7.5% per annum, are due and payable on
the fifteenth day following the date of delivery by Monto Holdings of written
demand therefor.
As of December 31, 1998, Harold Dyne was indebted to Pacific Trim in the
aggregate amount of $28,500. This indebtedness is evidenced by a promissory note
dated August 31, 1997 in the principal amount of
Page 10
$19,649, which currently does not bear interest, and a promissory note dated
October 15, 1997 in the principal amount of $3,000, which bears interest at a
rate of 7.5% per annum and was due and payable on December 31, 1998.
As of December 31, 1998, Colin Dyne was indebted to Tag-It in the aggregate
amount of $136,030. This indebtedness is evidenced by a promissory note dated
August 31, 1997 in the principal amount of $71,542, which is due and payable in
four installments of $17,886 on June 30, 1998, December 31, 1998, June 30, 1999
and December 31, 1999, and a promissory note dated October 15, 1997 in the
principal amount of $6,089, which was due and payable on December 31, 1998. Both
promissory notes bear interest at a rate of 7.5% per annum.
In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. Alan Saloner, a significant
stockholder of the Company, is an officer and director of Safcor. Pursuant to
the Safcor Agreement, AGS Stationery had agreed to sell to Safcor all accounts
relating to the sale of goods or the rendering of services by AGS Stationery for
a purchase price equal to the gross amount of each account, less all discounts
and credits and a factoring commission of 1.5% of the net amount of the account.
In addition, Safcor had the right, in its sole discretion, to provide customers
of AGS Stationery with credit lines for the purchase of AGS Stationery's
products. The agreement was terminated in April 1998. During fiscal 1998,
receivables advanced by AGS Stationery to Safcor totaled $65,271. These
receivables were returned by Safcor to AGS Stationery upon termination of the
Safcor Agreement in April 1998.
In 1994, Jonathan Markiles, as compensation for employment services,
received warrants to purchase 14 shares of common stock of Tag-It, Inc., which
warrants became exercisable for 39,235 shares of Common Stock of the Company at
a price of $.7136 per share immediately prior to the Company's initial public
offering. In the event the shares of Common Stock underlying the warrants are
not freely tradable under the Securities Act of 1933, as amended, the Company
has agreed to register these shares on Form S-3 or Form S-8. The warrants
provide for piggyback registration rights and expire on December 31, 2002.
Averil Capital Markets Group, Inc., a financial advisory firm founded and
controlled by Diana Maranon, has, since January 1, 1996, performed various
services for AGS Stationery and the Company including investigation of strategic
financing and other corporate growth initiatives. Ms. Maranon served as a
director of the Company from January 1998 until May 1999. As consideration for
such services, AGS Stationery paid to 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 the
Company paid to Averil $175,000 upon consummation of the Company's initial
public offering. Immediately prior to the Company's initial public offering, the
warrants granted to Chloe Holdings became exercisable for 22,841 shares of
Common Stock of the Company. The warrants are currently exercisable. In the
event the shares of Common Stock underlying the warrants are not freely tradable
under the Securities Act of 1933, as amended, the Company has agreed to register
these shares on Form S-3. The Company plans to continue to engage Averil;
however, the Company is unable to currently estimate the extent to which it will
use Averil in the future.
In October 1998, KG Investment, LLC, a Los Angeles-based private investment
company, purchased 2,390,000 restricted shares of the Company's Common Stock for
an aggregate price of $2,688,750. KG Investment is owned by Gerard Guez and Todd
Kay. Mr. Guez is the Chairman of the Board and Chief Executive Officer and a
significant stockholder of Tarrant Apparel Group. Mr. Kay is the President and a
significant stockholder of Tarrant Apparel Group. Tarrant Apparel Group is a
customer of the Company. During fiscal 1998, Tarrant Apparel Group purchased an
aggregate of $569,000 in products from the Company.
In connection with its investment in the Company, KG Investment agreed not
to dispose of its shares of Common Stock prior to October 16, 2000, except to
certain affiliated parties, without the prior written consent of the Company.
After October 16, 2000, KG Investment may sell or transfer any of the shares in
accordance with applicable law; provided that if the sale is made other than (i)
in accordance with the volume restrictions of Rule 144 under the Securities Act
of 1933 or (ii) in connection with a public offering initiated by the Company,
then the Company shall have a right of first refusal to purchase the shares
(which right may be assigned by the Company) upon the same or economically
equivalent terms and conditions. The Company granted KG Investment piggyback
registration rights which entitles it to sell its shares of Common Stock in a
registered public offering in
Page 11
the same proportion as shares of Common Stock sold in the same offering by any
of Colin Dyne, Mark Dyne, Harold Dyne, Larry Dyne and/or Jonathan Burstein (the
"Dyne Shareholders").
KG Investment has agreed to certain restrictions on the voting of the
shares it purchased until after October 16, 2000. KG Investment has agreed not
to vote in favor of any merger, asset sale or other extraordinary transaction
involving the Company, if such transaction is not approved by the majority of
the Company's Board of Directors; provided, however, in the event that the price
to be paid per share of Common Stock pursuant to such transaction is at least
$8.00, KG Investment is not prohibited from voting in favor of the transaction.
In addition, so long as the Dyne Shareholders hold more than 1,000,000 shares of
Common Stock, KG Investment has agreed to vote 386,778 of its shares of Common
Stock (as the same are adjusted for stock splits, stock dividends and other
similar transactions) (the "Neutral Shares") in the same proportion as all other
outstanding shares of Common Stock are voted on all matters presented to the
Company's stockholders. The number of Neutral Shares will be reduced share by
share by any shares of Common Stock purchased from the Company by the Dyne
Shareholders. KG Investment has the right to vote its shares, other than the
Neutral Shares, in accordance with its own objectives; provided, that KG
Investment has agreed that neither KG Investment, nor an entity affiliated with
or controlled by KG Investment, will solicit proxies against, or promote or
initiate, or encourage another party to promote or initiate, a proxy
solicitation or vote contest in opposition to, the management or the Board of
Directors of the Company. Furthermore, KG Investment has agreed that until after
the 2000 Annual Meeting of Stockholders of the Company, it will not nominate, or
cause to be nominated, any directors for election at any annual meeting, and to
vote its shares of Common Stock in the same proportion as all other outstanding
shares of Common Stock voted with respect to the election of directors of the
Company. Finally, KG Investment has agreed to vote its shares of Common Stock to
approve any amendment increasing the number of shares of Common Stock reserved
for issuance under the Company's 1997 Stock Plan, up to a maximum of 900,000
shares.
Murray Markiles, who is Jonathan Markiles's brother and Paul Markiles' son,
is a partner with Troop Steuber Pasich Reddick & Tobey, LLP ("TSPRT"). TSPRT is
legal counsel to Company. As compensation for legal services performed by TSPRT
in connection with the Company initial public offering, the Company granted to
TSPRT a warrant to purchase 35,555 shares of Common Stock at an exercise price
of $3.60 per share. In October 1998, the Company repriced the warrants issued to
TSPRT 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.
Page 12
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 562,500 shares to
1,177,500 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 May 15, 1999, only 500 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 its 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 May 13, 1999, the last reported sales price of the Common Stock on the
American Stock Exchange was $6.875 per share.
SUMMARY OF THE 1997 PLAN
PURPOSE. The purpose of the 1997 Plan is to advance the interests of the
Company and its stockholders by strengthening the Company's ability to obtain
and retain the services of the types of employees, consultants, officers and
directors who will contribute to the Company's long term success and to provide
incentives which are linked directly to increases in stock value which will
inure to the benefit of all stockholders of the Company.
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 1, 1999, approximately 96 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
Page 13
form or structure and may include 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
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.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 1, 1999, 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.
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
Page 14
(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 15
PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION
OF THE COMPANY TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK
THE AMENDMENT
In April 1999, the Board of Directors adopted resolutions approving and
recommending that the stockholders adopt an amendment to Article IV of the
Company's Certificate of Incorporation to increase the authorized Common Stock
from 15,000,000 shares to 30,000,000 shares. The relative rights and limitations
of the Common Stock would remain unchanged under the amendment. The Common Stock
does not have preemptive rights.
The Company's Certificate of Incorporation presently authorizes the
issuance of 15,000,000 shares of Common stock and 3,000,000 shares of Preferred
Stock, each having a par value of $.001 per share. Of the 15,000,000 presently
authorized shares of Common Stock, 6,726,677 shares were issued and outstanding
on May 7, 1999, the record date. Of the 3,000,000 shares of presently authorized
Preferred Stock, 250,000 shares have been designated Series A Preferred Stock
and have been reserved for issuance in connection with the Company's
stockholders' rights plan. No shares of Series A Preferred Stock were issued or
outstanding as of the record date. In addition, an aggregate of 848,631 shares
of Common Stock have been reserved for issuance as of the record date under the
Company's 1997 Stock Plan, warrants and other rights to purchase Common Stock of
the Company. Accordingly, only 7,424,692 shares of Common Stock remain available
for other corporate purposes.
The Board of Directors believes that the proposed increase in the
authorized shares of Common Stock is in the best interests of the Company and
its stockholders and believes that it is advisable to authorize such additional
shares and have them available in connection with the possible future
transactions, such as financings, strategic alliances, corporate mergers,
acquisitions, possible funding of new product programs or businesses and other
uses not presently determinable and as may be deemed to be feasible and in the
best interests of the Company. In addition, the Board of Directors believes that
it is desirable that the Company have the flexibility to issue shares of Common
Stock without further stockholder action, except as otherwise provided by law.
If the proposal is adopted, the amended portion of Article IV of the
Certificate of Incorporation will read as follows:
IV.
This Corporation is authorized to issue two classes of shares,
designated, respectively, "Preferred Stock" and "Common Stock." Each class
of stock shall have a par value of $.001 per share. The number of shares of
Preferred Stock authorized to be issued is 3,000,000 and the number of
shares of Common Stock authorized to be issued is 30,000,000.
The only change in Article IV which will be effected if the proposal is
approved is the change to the one number set forth in bold face type above.
Presently, Article IV provides that the shares of Common Stock which the Company
may issue is 15,000,000. All other provisions of Article IV will remain
unchanged.
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
The Board of Directors believes that approval of the proposal is essential
for the growth and development of the Company. However, the following should be
considered by a stockholder in deciding how to vote upon this proposal.
The additional shares of Common Stock which the Board of Directors would be
authorized to issue upon approval of the proposal, if so issued, could have an
anti-takeover effect. Additional shares of Common Stock could be issued (within
the limits imposed by applicable law) in one or more transactions that could
make a change in control or takeover of the Company more difficult. For example,
the Company could issue additional shares for the purpose of diluting the stock
ownership or voting rights of persons seeking to obtain control of the Company.
Page 16
The issuance of additional shares of Common Stock would have a dilutive
effect upon the percentage of equity of the Company owned by present
stockholders. The issuance of such additional shares might be disadvantageous to
current stockholders in that any additional issuances would potentially reduce
per share dividends, if any. Stockholders should consider, however, that the
possible impact upon dividends is likely to be minimal in view of the fact that
the Company has never paid dividends, has never adopted any policy with respect
to the payment of dividends and does not intend to pay any cash dividends in the
foreseeable future. The Company instead intends to retain earnings, if any, for
use in financing growth and additional business opportunities.
The proposal is not the result of the Board of Directors' knowledge of any
specific effort to accumulate the Company's securities or to obtain control of
the Company by means of a merger, tender offer, proxy solicitation in opposition
to management or otherwise. The Company is not submitting the proposal to enable
it to frustrate any efforts by another party to acquire a controlling interest
or to seek representation on the Board of Directors. The submission of the
proposal is not a part of any plan by management to adopt a series of amendments
to the Certificate of Incorporation or Bylaws so as to render the takeover of
the Company more difficult.
REQUIRED VOTE
The Board has unanimously approved the amendment of the Certificate of
Incorporation to increase the authorized number of shares of Common Stock. The
approval of the amendment of the Certificate of Incorporation requires the
affirmative vote of a majority of the votes entitled to be cast by the holders
of all of the outstanding shares of the Company's Common Stock. 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 AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
Page 17
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 15, 1999 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all of the Company's
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
such person has the sole voting and investment power with respect to the shares
owned. The address of each person listed is in care of the Company, 3820 South
Hill Street, Los Angeles, California 90037, unless otherwise set forth below
such person's name.
NUMBER OF SHARES
OF
COMMON STOCK
BENEFICIALLY
NAME AND ADDRESS OWNED(1) PERCENT(1)
---------------- ---------------- ---------
KG Investments, LLC.......................................... 2,390,000 35.5%
3151 East Washington Blvd.
Los Angeles, CA 90023
Harold Dyne (2).............................................. 757,507 11.1
Colin Dyne (3)............................................... 682,541 10.0
Mark Dyne (4)................................................ 539,401 7.9
Alan Saloner (5)............................................. 426,834 6.3
Jonathan Burstein (6)........................................ 119,788 1.8
Jonathan Markiles (7)........................................ 67,248 1.0
Kevin Bermeister............................................. 157,117 2.3
Francis Shinsato (8)......................................... 30,000 *
Brent Cohen (9).............................................. 20,000 *
Michael Katz (10)............................................ 15,000 *
Paul Markiles (10)........................................... 15,000 *
Directors and executive officers
as a group (10 persons) (11).............................. 2,403,602 33.6%
- ----------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the date
as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. 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 May
15, 1999.
(2) Consists of (i) 659,507 shares of Common Stock held by H&A Dyne Holdings,
LP, and (ii) 98,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable. Harold Dyne is
the President and principal stockholder of Dyne Equities Corp., which is
the general partner of H&A Dyne Holdings, LP.
(3) Includes 98,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(4) Includes 78,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
Page 18
(5) Consists of (i) 160,168 shares of Common Stock held by Saloner Family
Investments Limited Partnership, and, (ii) 266,666 shares of Common Stock
held by Heathmount International Limited. The Company believes that Alan
Saloner is a principal executive officer and shareholder of Safcor, Inc.,
which is the general partner of Saloner Family Investments Limited
Partnership, and that Mr. Saloner is a principal executive officer and
shareholder of Heathmount International Limited.
(6) Includes 24,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(7) Includes (i) 14,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 39,235
shares of Common Stock reserved for issuance upon exercise of warrants
which currently are exercisable.
(8) Consists of 30,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(9) Consists of 20,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(10) Consists of 15,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(11) Includes (i) 392,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 39,235
shares of Common Stock underlying warrants which currently are exercisable.
Page 19
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the next Annual
Meeting of Stockholders, for inclusion in the Company's Proxy Statement and
Proxy form relating to such Annual Meeting, must submit that proposal to the
Company at its principal executive offices by January 23, 1999.
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 the
year ended December 31, 1998 and have been selected by the Board of Directors to
serve as independent auditors for the fiscal year ending December 31, 1999.
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 primarily 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 for the purpose of soliciting such
proxies.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1998, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO FRANCIS
SHINSATO, CHIEF FINANCIAL OFFICER, TAG-IT PACIFIC, INC., 3820 SOUTH HILL STREET,
LOS ANGELES, CALIFORNIA 90037.
ON BEHALF OF THE BOARD OF DIRECTORS
/S/ Francis Shinsato
Francis Shinsato
CHIEF FINANCIAL OFFICER
Los Angeles, California
May 26, 1999
Page 20
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 FRANCIS SHINSATO,
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 16, 1999, 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 Proposal 2
and a FOR vote on Proposal 3 and Proposal 4.
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)
Brent Cohen Kevin Bermeister
2. ELECTION OF CLASS II 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)
Harold Dyne Michael Katz Paul Markiles
3. 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 _____
4. The approval of the amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of
Common Stock.
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 AND CLASS II DIRECTORS NAMED, THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1997 STOCK PLAN, THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION AND AS THE PROXY HOLDER SHALL DEEM
ADVISABLE ON ANY OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING, UNLESS
OTHERWISE DIRECTED.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated May 26, 1999 relating to the
Annual Meeting.
Date: ________________________, 1999
--------------------------------------
--------------------------------------
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.