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 by
[ ] Definitive Additional Materials 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.:
================================================================================
(3) Filing party:
================================================================================
(4) Date Filed:
================================================================================
TAG-IT PACIFIC, INC.
-----------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------------------------
TIME.......................... 11:00 a.m. Pacific Daylight Time on
June 14, 2002
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 II members of the
Board of Directors for three-year terms.
The persons nominated by our Board of
Directors (Messrs. Michael Katz and
Jonathan Burstein) 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
2,077,500 shares to 2,277,500 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 19,
2002.
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
April 22, 2002
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. TAG-IT PACIFIC, INC. 21900 BURBANK BOULEVARD, SUITE
270, WOODLAND HILLS, CALIFORNIA 91367
Page 1
TAG-IT PACIFIC, INC.
21900 BURBANK BOULEVARD, SUITE 270,
WOODLAND HILLS, CALIFORNIA 91367
PROXY STATEMENT
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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 2002
Annual Meeting of stockholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of stockholders on June 14,
2002, beginning at 11:00 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 and convertible redeemable series C
preferred stock at the close of business on April 19, 2002 are entitled to
receive this notice and to vote their shares at the Annual Meeting. As of April
19, 2002, there were 9,276,409 shares of common stock outstanding. Holders of
our convertible redeemable series C preferred stock have the right to vote with
our common stock based on the number of common shares that the series C
preferred shares could be converted into on the record date. As of April 19,
2002, the convertible redeemable series C preferred stock was convertible into
607,288 shares of common stock, which shares are entitled to vote with our
common stock.
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. Broker non-votes occur when a broker holding customer securities in
street name has not received voting instructions from the customer on certain
non-routine matters and, therefore, is barred by the rules of the applicable
securities exchange from exercising discretionary authority to vote those
securities.
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.
Page 2
ELECTION OF DIRECTORS.
The two nominees for Class II 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
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 2,077,500 shares to 2,277,500 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 1, 2002.
Page 3
ITEM 1: ELECTION OF DIRECTORS
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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 eight.
The Class II directors whose terms expire at the 2002 Annual Meeting are
Michael Katz and Jonathan Burstein. The Board of Directors has nominated Michael
Katz and Jonathan Burstein to serve as Class II directors for terms expiring in
2005. The Class III directors are serving terms that expire in 2003, and the
Class I directors are serving terms that expire in 2004. Two 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, 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 II directors:
Michael Katz
Jonathan Burstein
If elected, Mr. Katz and Mr. Burstein are expected to serve until the 2005
Annual Meeting of stockholders. The two nominees for election as Class II
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 19, 2002:
DIRECTORS AND EXECUTIVE OFFICERS
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
----------------------------------- ----- ----------- ------------------------------------------
NOMINEES:
CLASS II DIRECTORS
(terms expiring in 2002)
Michael Katz....................... 60 1998 Director
Jonathan Burstein (2).............. 35 1999 Vice President of Operations and Director
CONTINUING DIRECTORS:
CLASS I DIRECTORS (1)
(terms expiring in 2004)
Kevin Bermeister................... 41 1999 Director
Brent Cohen........................ 43 1998 Director
CLASS III DIRECTORS
(terms expiring in 2003)
Mark Dyne (3)..................... 41 1997 Chairman of the Board of Directors
Colin Dyne (3)..................... 39 1997 Chief Executive Officer, President and
Director
Donna Armstrong.................... 40 2001 Director
OTHER OFFICERS:
Jonathan Markiles.................. 37 Secretary and Vice President of Strategic
Planning and Business Development
Ronda Sallmen...................... 36 Chief Financial Officer
-----------------
(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.
Page 5
CLASS II DIRECTOR NOMINEES: 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. During this period, Mr.
Burstein has been responsible for many of the
internal operations of the Company, including
logistics, purchasing and managing key customer
relationships. From 1987 until 1999, Mr. Burstein
has been responsible for managing many of our
largest customer accounts, including transitioning
customers to our MANAGED TRIM SOLUTION e-commerce
system. Mr. Burstein is the brother-in-law of Colin
Dyne and Mark Dyne.
CLASS I DIRECTOR NOMINEES: TERMS EXPIRING IN 2004
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 and as its Chief Executive Officer since the
beginning of 2001. 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 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 served as
president and chief executive officer of US SEARCH
since February 2000. From July 1987 through October
1998, Mr. Cohen held senior management positions
with Packard Bell NEC (formerly Packard Bell
Electronics), including Chief Operating Officer,
Chief Financial Officer and President--Consumer and
International. Subsequently, Mr. Cohen served on the
board of advisors and directors of several companies
from October 1998 through January 2000. From January
1980 through December 1982 and from January 1985
through June 1987 Mr. Cohen held various management
positions in both the management consulting and
auditing practice of Arthur Young & Company (now
Ernst & Young). Mr. Cohen holds a Bachelor of
Commerce degree, a Graduate Diploma in Accounting
and an MBA from the University of Cape Town in South
Africa. He is also a chartered accountant.
MEMBER: COMPENSATION COMMITTEE, AUDIT COMMITTEE
Page 6
CLASS III 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 of Brilliant Digital
Entertainment, Inc., a publicly traded corporation,
since October 1996. Mr. Dyne has served as the Chief
Executive Officer and also the Managing Director of
Eurocapital, LLC, a merchant banking and advisory
firm since July 2000. 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 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.
DONNA ARMSTRONG Ms. Armstrong was appointed as a member to
the Board of Directors in September 2001. From 1996
to present, Ms. Armstrong has been employed by the
UK-based thread conglomerate Coats plc where she has
held several key positions with the Coats North
American businesses, Finance Director of the Coats
European businesses and most recently as the Chief
Financial Officer of the Coats North American
businesses. Ms. Armstrong served as the Accounting
Manager for Continental General Tire, a German-owned
tire manufacturer, from 1995-1996. Before joining
Continental General Tire, Ms. Armstrong was employed
with Deloitte & Touche for 11 years where she
attained the position of Senior Manager in the Audit
Advisory Services practice in Charlotte, North
Carolina. In this role, she was responsible for
providing audit and business advisory services to
private and publicly held companies with primary
focus in the manufacturing industry. Ms. Armstrong
is a certified public accountant for the state of
North Carolina.
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.
Page 7
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.
Pursuant to the series C preferred stock purchase agreement entered into by
us and Coats North America Consolidated, Inc., and for so long as Coats North
America Consolidated holds 66 2/3% of the shares of the our series C preferred
stock that it purchased in September 2001, we have agreed to use commercially
reasonable efforts to cause a representative designated by Coats North America
Consolidated to be nominated to serve as director of our company. Donna
Armstrong currently serves as one of our directors pursuant to this agreement.
BOARD MEETINGS AND COMMITTEES.
The Board of Directors held four meetings and acted four additional times
by unanimous written consent during fiscal 2001. Each director attended at least
75% of all the meetings of the Board of Directors and those committees on which
he or she served in fiscal 2001. 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. 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 Directors. All
audit committee members are independent directors as defined in the listing
standards of the American Stock Exchange. The audit committee held four meetings
during fiscal 2001.
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 plan and executive incentive
compensation. The compensation committee held two meetings during fiscal 2001.
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. Non-employee directors, Messrs. Bermeister, Cohen and
Katz, received 10,000 options each to purchase shares of the Company's common
stock in fiscal 2001. We also reimburse directors for their reasonable travel
expenses incurred in attending board or committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
There are no interlocking relationships involving any of our compensation
committee members 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
------------------------------------------ ----------- ----------- ----------- -----------
Colin Dyne................................ 2001 $ 326,536 $ 51,680 50,000
Chief Executive Officer, 2000 317,000 54,940 140,000
President and Director 1999 229,251 27,921 145,000
Jonathan Burstein......................... 2001 $ 187,596 $ 22,434 15,000
Vice President of Operations 2000 167,980 27,942 50,000
and Director 1999 175,168 35,929 20,000
Ronda Sallmen (2)......................... 2001 $ 142,308 $ 8,833 20,000
Chief Financial Officer 2000 74,505 1,554 55,000
Jonathan Markiles ........................ 2001 190,769 $ -- 15,000
Vice President of Strategic 2000 178,846 -- 30,000
Planning and Business 1999 154,462 -- 15,000
Development and Secretary
(1) Other compensation indicated in the above table consists of car and expense
allowances and medical and disability insurance.
(2) Ms. Sallmen joined the Company in June 2000.
Page 9
OPTION GRANTS IN FISCAL 2001
The following table sets forth information regarding stock options granted
to the Named Executive Officers during the fiscal year ended December 31, 2001.
This information includes hypothetical potential gains from stock options
granted in fiscal 2001. 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 2001. 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 2001
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE OR POTENTIAL REALIZED VALUE
UNDERLYING EMPLOYEES BASE PRICE AT ASSUMED RATE OF STOCK
OPTIONS IN FISCAL PER SHARE EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED YEAR (1) (2) DATE OPTION TERM (3)
----------------------- ---------- ----------- ----------- ---------- ------------------------
5% 10%
--------- ---------
Colin Dyne............. 50,00(4) 10.3% $ 3.640 11/8/11 $ 9,100 $18,200
Jonathan Burstein...... 15,000 3.1 3.640 11/8/11 2,730 5,460
Ronda Sallmen.......... 20,000 4.1 3.640 11/8/11 3,640 7,280
Jonathan Markiles...... 15,000 3.1 4.250 4/25/11 3,188 6,375
(1) We granted options covering an aggregate of 485,000 shares of common stock
to employees during the fiscal year ended December 31, 2001.
(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.
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 2001,
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
($3.95 per share) on December 31, 2001, the last trading day during 2001, as
reported by the American Stock Exchange.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------- -------- -------- ----------- ------------- ----------- -------------
Colin Dyne .......... -- $ -- 335,000 -- $ 25,500 $ --
Jonathan Burstein.... -- -- 92,500 22,500 63,625 24,525
Ronda Sallmen........ -- -- 51,875 23,125 6,000 6,200
Jonathan Markiles.... -- -- 75,000 5,000 42,750 13,250
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 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 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 2,077,500, 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, 2001, 531,500 shares of common stock remained available
for grant of awards to eligible participants under the 1997 Plan.
Page 11
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. In connection with its deliberations, the committee seeks, and is
significantly influenced by, the views of the Chief Executive Officer with
respect to appropriate compensation levels of the other officers.
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 2001 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 2001will be
fully deductible. With respect to compensation to be paid to executives in 2002
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 12
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. 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 2001, the audit committee:
- Reviewed and discussed the audited financial statements for the year
ended December 31, 2001 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;
- Received written disclosures and a letter from BDO regarding its
independence as required by Independence Standards Board Standard No.
1. The audit committee discussed with BDO their independence; and
- 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, 2001 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, 2001 and the reviews of the financial statements included in the
Company's Forms 10-Q for that fiscal year, were $99,000.
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, 2001.
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,
2001, were $41,550.
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 13
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, 2001, 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 47 MONTH CUMULATIVE TOTAL RETURN*
AMONG TAG-IT PACIFIC, INC., THE AMEX MARKET VALUE INDEX
AND THE DOW JONES TEXTILES & APPAREL INDEX
[GRAPHIC OMITTED]
Cumulative Total Return
-------------------------------------------------------------------------
January 23, December 31, December 31, December 31, December 31,
1998 1998 1999 2000 2001
-------------------------------------------------------------------------
Tag-it Pacific, Inc. 100.00 109.38 140.63 101.58 98.75
AMEX Market Value 100.00 107.33 137.12 140.90 134.27
Dow Jones Textiles & Apparel 100.00 83.74 81.52 99.06 99.90
Page 14
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 2001, 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, was 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 provided for base rent of
$9,072 per month on a month-to-month basis. We relocated our executive offices
to Woodland Hills, California, in May 2001 and terminated our lease agreement
with D.P.S. Associates.
From January 1996 through May 1999, 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. On September 10, 2001, we issued an additional 20,000 warrants
to Chloe Holdings, Inc. for consulting services provided on our behalf. The
warrants are exercisable at $5.00 per share and expire on July 18, 2004.
Consulting fees of $366,000 paid to Averil for the year ended December 31, 2001
were for services rendered in connection with the refinancing of our bank loan.
For the year ended December 31, 2001, we paid $150,000 in consulting fees
to Diversified Consulting, LLC, a company owned by Audrey Dyne, mother of Colin
Dyne and Mark Dyne, and $64,900 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., our corporate 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, holds a significant equity interest in Monto Holdings
Pty. Ltd. and NPM Investments, Inc. Alan Saloner, one of our 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);
Page 15
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);
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 $63,707 to
Monto Holdings Pty. Ltd. through December 31, 2001);
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.
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. At December 31,
2001, we were indebted to Mr. Dyne in the aggregate amount of $579,795.
As of December 31, 2001, Colin Dyne was indebted to Tag-It, Inc. as part of
a series of loans in the aggregate amount of $589,803. 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 and bears interest at 8.5% and prime. 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. The largest aggregate net amount due from Mr. Dyne during
the year ended December 31, 2001 amounted to $404,803.
As of December 31, 2001, Jonathan Burstein was indebted to Tag-It, Inc. as
part of a series of loans in the aggregate amount of $86,365, the largest
aggregate balance during the year ended December 31, 2001. This indebtedness
bears interest of 7.5 % and is due and payable on demand.
In a series of sales on December 28, 2001, January 7, 2002 and January 8,
2002, we entered into stock and warrant purchase agreements with three private
investors, including Mark Dyne, the chairman of our board of directors. Pursuant
to the stock and warrant purchase agreements, we issued an aggregate of 516,665
shares of common stock at a price per share of $3.00 for aggregate proceeds of
$1,549,995. The stock and warrant purchase agreements also include a commitment
by one of the investors to purchase an additional 400,000 shares of common stock
at a price per share of $3.00 at a second closing (subject of certain
conditions) on or prior to October 1, 2002 for additional proceeds of
$1,200,000. Pursuant to the stock and warrant purchase agreements, 258,332
warrants to purchase common stock were issued, including 83,334 warrants issued
to Mark Dyne. The warrants are exercisable immediately after closing, one half
of the warrants at 110% and the second half at an exercise price of 120% of the
market value of our common stock on the date of closing. The exercise price for
the warrants shall be adjusted upward by 25% of the amount, if any, that the
market price of our common stock on the exercise date exceeds the
Page 16
initial exercise price (as adjusted) up to a maximum exercise price of $5.25.
The warrants have a term of four years. The shares contain restrictions related
to the sale or transfer of the shares, registration and voting rights. In March
2002, one of the investors purchased 100,000 shares of common stock at a price
per share of $3.00 pursuant to the second closing provisions of the stock and
warrant purchase agreement for total proceeds of $300,000. The remaining
commitment under the stock and warrant purchase agreement is for an additional
300,000 shares with aggregate proceeds of $900,000. Pursuant to the second
closing provisions of the stock and warrant purchase agreement, 50,000 warrants
were issued to the investor.
Our sales to Brilliant Digital Entertainment amounted to $144,000 in fiscal
1999. Mark Dyne, our chairman, and Kevin Bermeister, one of our directors, are
also officers of Brilliant Digital Entertainment. $81,400 of accounts
receivables was due from Brilliant Digital Entertainment at December 31, 1999.
On February 1, 2001, 15,000 options held by Paul Markiles, a former
director of the Company, were exercised.
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 27.3% of the outstanding shares of our common
stock at December 31, 2001. 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. Total sales to Tarrant for the
years ended December 31, 2001, 2000 and 1999 amounted to approximately
$18,438,000, $23,760,000 and $15,500,000. As of December 31, 2001, 2000 and
1999, accounts receivable related parties included approximately $4,995,000,
$8,270,000 and $2,047,000 due from Tarrant. Terms are net 60 days. During the
year ended December 31, 1999, 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
Azteca Production International, Inc., AZT International SA D RL, and Commerce
Investment Group, LLC. Pursuant to this supply agreement we 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 an 18-month period and each year after that date will be a
12-month period. 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, or approximately 11.4% the outstanding shares of
our common stock at December 31, 2001. The shares of restricted stock were
issued at the market price of our stock at the time of issuance. Total sales to
Azteca for the years ended December 31, 2001 and 2000 amounted to approximately
$9,016,000 and $1,878,000. As of December 31, 2001 and 2000, accounts receivable
related parties included approximately $2,920,000 and $771,000 due from Azteca.
Terms are net 60 days.
On April 3, 2000, we entered into a ten-year exclusive license and
distribution agreement with Talon, Inc. and its parent company, Grupo Industrial
Cierres Ideal, S.A. de C.V. Under this agreement, we were the exclusive
Page 17
sales, marketing, distribution and e-commerce arm for "Talon" products for all
customers in the United States, Mexico-based maquiladores, Canada and the
Pacific Rim and had the exclusive license to market trim products under the
"Talon" brand name. In exchange for these exclusive distribution rights, we
issued 850,000 shares of Series B Convertible Preferred stock to Grupo
Industrial Cierres Ideal, S.A. de C.V. After a period of 30 months, the shares
were convertible into common stock once the average price per share of our
common stock reached or exceeded $8.00 for a 30-day consecutive period. The
preferred stock was automatically convertible into shares of 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. The
series B convertible preferred stock had a liquidation preference of $.001 per
share, and was entitled to receive non-cumulative dividends on an as converted
basis, if and when, such dividends were declared on our common stock and was
redeemable by us under certain conditions as outlined in the agreement.
On September 30, 2000, we purchased inventory from Grupo Industrial Cierres
Ideal, S.A. de C.V. in exchange for an unsecured note payable in the amount of
$2,830,024. The note payable was non-interest bearing and was due April 1, 2002.
Imputed interest for the holding period of the note amounted to $272,000. The
note was subordinate to the obligations due under our credit facility with UPS
Capital. The note payable balance at December 21, 2001 was $2,767,182, net of
imputed interest of $62,842.
On December 21, 2001, we entered into an asset purchase agreement with
Talon, Inc. and Grupo Industrial Cierres Ideal, S.A. de C.V. Pursuant to the
asset purchase agreement, we acquired from Talon, Inc. and Grupo Industrial
Cierres Ideal, S.A. de C.V: (1) certain inventory and equipment, (2) all patent
rights held by Talon, Inc. and (3) all of Talon's rights to its trade names and
trademarks bearing the TALON(R)name. In addition, the asset purchase agreement
terminated the exclusive 10-year license and distribution agreement, dated as of
April 3, 2000 by and among us, Grupo Industrial Cierres Ideal, S.A. de C.V. and
Talon, Inc.
Under the asset purchase agreement, we issued to Talon, Inc. 500,000 shares
of common stock, par value $0.001 per share, a promissory note in the amount of
$4,900,000 and $100,000 in cash held in escrow. The asset purchase agreement
required Talon, Inc. to place 50,000 shares of our common stock and $100,000 in
escrow for a period of 12 months to satisfy any indemnification claims we may
have under the asset purchase agreement. The common stock was valued at the
market value of our stock on the date of closing. The promissory note is
unsecured, bears interest at prime plus 2% (6.75% at December 31, 2001) and is
subordinated to our obligations under our senior credit facility with UPS
Capital Global Trade Finance Corporation. In connection with the asset purchase
agreement, we also entered into a mutual release with Talon, Inc. and Grupo
Industrial Cierres Ideal, S.A. de C.V. pursuant to which Talon, Inc. and Grupo
Industrial Cierres Ideal, S.A. de C.V. released us from our obligations under
the unsecured note payable of $2,830,024 dated September 30, 2000 and other
current liabilities under the exclusive license and distribution agreement.
Further, 850,000 shares of our series B convertible preferred stock held by
Grupo Industrial Cierres Ideal, S.A. de C.V. were cancelled at the closing of
the asset purchase agreement.
In accordance with the series C preferred stock purchase agreement entered
into by us and Coats North America Consolidated, Inc., an affiliate of Coats,
plc, on September 20, 2001, we issued 759,494 shares of series C convertible
redeemable preferred stock to Coats North America Consolidated, Inc. in exchange
for an equity investment from Coats North America Consolidated of $3 million
cash. The series C preferred shares are convertible at the option of the holder
after one year at the rate of the closing price multiplied by 125% of the
ten-day average closing price prior to closing. The series C preferred shares
are redeemable at the option of the holder after four years. If the holders
elect to redeem the series C preferred shares, we have the option to redeem for
cash at the stated value of $3 million or in the form of the our common stock at
85% of the market price of our common stock on the date of redemption. If the
market price of our common stock on the date of redemption is less than $2.75
per share, we must redeem for cash at the stated value of the series C preferred
shares. We can elect to redeem the series C preferred shares at any time for
cash at the stated value. The preferred stock purchase agreement provides for
cumulative dividends at a rate of 6% of the stated value per annum, payable in
cash or our common stock. Each holder of the series C preferred shares has the
right to vote with our common stock based on the number of our common shares
that the series C preferred shares could then be converted into on the record
date. As of the record date, Coats North America Consolidated, Inc. is allowed
to vote 607,288 shares of our common stock pursuant to the series C preferred
stock agreement.
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 2,077,500 shares to
2,277,500 shares. The 1997 Plan is attached hereto as Appendix A. 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 19, 2002, only 531,500 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 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 19, 2002, the last reported sales price of the common stock on the
American Stock Exchange was $3.75 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 19, 2002, approximately 87 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. The 1997 Plan was further
amended 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 and again in fiscal 2001 to increase the number of shares of
common stock available for issuance under the amended 1997 Plan from 1,777,500
shares to 2,077,500 shares . The Company's stockholders approved the first
amendment to the plan at the 1999 Annual Meeting of stockholders, the second
amendment to the plan at the 2000 Annual Meeting of stockholders and the third
amendment to the plan at the 2001 Annual Meeting of the stockholders.
EFFECT OF SECTION 16(B) OF THE SECURITIES EXCHANGE ACT OF 1934. The
acquisition and disposition of common stock by officers, directors and more than
10% stockholders of the Company ("Insiders") pursuant to awards granted to them
under the 1997 Plan may be subject to Section 16(b) of the Securities Exchange
Act of 1934. Pursuant to Section 16(b), a purchase of common stock by an Insider
within six months before or after a sale of common stock by the Insider could
result in recovery by the Company of all or a portion of any amount by which the
sale proceeds exceed the purchase price. Insiders are required to file reports
of changes in beneficial ownership under Section 16(a) of the Securities
Exchange Act of 1934 upon acquisitions and dispositions of shares. Rule 16b-3
provides an exemption from Section 16(b) liability for certain transactions
pursuant to certain employee benefit plans. The 1997 Plan is designed to comply
with Rule 16b-3.
Page 20
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 19, 2002, the only type of award granted by the Company under
the 1997 Plan has 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 (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
Page 21
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 22
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership
of our common stock as of April 19, 2002:
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 19, 2002. 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.
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES CLASS
----------------------------------------------------- ------------- ----------
DIRECTORS:
Colin Dyne (1)....................................... 1,992,580 20.7%
Mark Dyne (2)........................................ 1,065,512 11.0%
Kevin Bermeister (3)................................. 192,117 2.1%
Jonathan Burstein (4)................................ 200,798 2.1%
Brent Cohen (5)...................................... 40,000 *
Michael Katz (6)..................................... 20,000 *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Jonathan Markiles (7) ............................... 131,588 1.4%
Ronda Sallmen (8) ................................... 65,000 *
5% HOLDERS:
KG Investment, LLC
3151 East Washington Blvd.
Los Angeles, CA 90023............................... 2,390,000 25.8%
The Estate of Harold Dyne (9)........................ 757,507 8.1%
Talon, Inc.
c/o Grupo Industrial Cierres Ideal
Paseo de la Reforma Num. 2608 PH
Col. Lomas Altas
Mexico D.F., 11950 .................................. 500,000 5.4%
Page 23
Harris Toibb.
307 21st Street
Santa Monica, CA 90402 (10)......................... 549,998 5.8%
Commerce Investment Group, LLC
5804 E. Slauson Ave., Commerce, CA 90046 ............ 1,000,000 10.8%
Coats North America Consolidated, Inc.
Two Lake Point Plaza
4135 South Stream Blvd.
Charlotte, NC 28217 (11) ........................... 607,288 6.1%
Directors and executive officers as a group (8
persons) (12) ....................................... 3,707,595 35.5%
* Less than one percent.
(1) Includes 335,000 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, 83,334 shares of common
stock reserved for issuance upon exercise of warrants which currently are
exercisable and 111,111 shares of common stock reserved for issuance upon
conversion of debt which is currently convertible.
(3) Consists of 35,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(4) Includes 105,010 shares of common stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(5) Consists of 40,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(6) Consists of 20,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(7) Includes 78,340 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 65,000 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) Includes 183,332 shares of common stock reserved for issuance upon exercise
of warrants which are currently exercisable.
(11) Includes 759,494 shares of series C convertible redeemable preferred stock,
convertible into 607,288 shares of common stock. The shares are convertible
at the election of the holder after September 20, 2002 and are entitled to
vote with our common stock based on the number of common shares that the
series C preferred shares could be converted into on the record date.
(12) Includes 921,350 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 which is currently
convertible and 122,569 shares of common stock reserved for issuance upon
exercise of warrants which currently are exercisable.
Page 24
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, 2001, 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 the following:
Each of KG Investment, LLC and Commerce Investment Group, LLC filed one late
Form 3 and one late Form 5 reporting one late transaction; Hubert Guez filed one
late Form 3 and one late Form 5, reporting three late transactions; Mark Dyne
filed one late Form 5 reporting one late transaction; and each of Gerard Guez
and Todd Kay filed one late Form 3 reporting one late transaction.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2003 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 14, 2003. In addition, in the event
a stockholder proposal is not received by the Company by April 16, 2003, the
Proxy to be solicited by the Board of Directors for the 2003 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 2003 Annual Meeting without any discussion of
the proposal in the Proxy Statement for such meeting.
SEC rules and regulations provide that if the date of the Company's 2003
Annual Meeting is advanced or delayed more than 30 days from the date of the
2002 Annual Meeting, stockholder proposals intended to be included in the proxy
materials for the 2003 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
for the 2003 Annual Meeting. Upon determination by the Company that the date of
the 2003 Annual Meeting will be advanced or delayed by more than 30 days from
the date of the 2002 Annual Meeting, the Company will disclose such change in
the earliest possible Quarterly Report on Form 10-Q.
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 2001 and have been selected by the Board of Directors to serve as
independent auditors for fiscal 2002. 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.
Page 25
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, 2001, 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
Chief Financial Officer
Tag-It Pacific, Inc.,
21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367
April 22, 2002
Page 26
APPENDIX "A"
AMENDED AND RESTATED
1997 STOCK OPTION PLA N
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.
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.
Page A-1
(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");
(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.
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
Page A-2
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.
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
Page A-3
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.
(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.
Page A-4
TAG-IT PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of Tag-It Pacific, Inc., a Delaware
corporation (the "Company"), hereby nominates, constitutes and appoints Colin
Dyne and Ronda Sallmen, or either one of them, as proxy of the undersigned, each
with full power of substitution, to attend, vote and act for the undersigned at
the Annual Meeting of Stockholders of the Company, to be held on June 14, 2002,
and any postponements or adjournments thereof, and in connection therewith, to
vote and represent all of the shares of the Company which the undersigned would
be entitled to vote with the same effect as if the undersigned were present, as
follows:
A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Proposal 1. To elect the following two nominees as Class II directors:
Michael Katz Jonathan Burstein
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the
contrary below)
|_| WITHHELD for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space below:)
--------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies and each of
them discretionary authority with respect to the election of
directors in the event that any of the above nominees is unable
or unwilling to serve.
Proposal 2. To amend the Company's 1997 Stock Plan to increase the maximum
number of shares of common stock which 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 said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH
ABOVE OR, TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A
GRANT OF AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED
AT THE ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN
ACCORDANCE WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting dated April 22, 2002 and the accompanying Proxy Statement relating to
the Annual Meeting.
Dated:___________________________, 2002
Signature:_____________________________
Signature:_____________________________
Signature(s) of Stockholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond
exactly with the name(s) of the Stockholder(s)
appearing on the Share Certificate. If stock is
held jointly, 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.
|_| Please indicate by checking this box if you
anticipate attending the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
Page A-5