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
|X| Definitive Proxy Statement the Commission Only (as
|_| Definitive Additional Materials permitted by Rule 14a-6
|_| Soliciting Material Pursuant to (e)(2)
Rule 14a-11(c) or Rule 14a-12
TAG-IT PACIFIC, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction 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:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
|_| Fee paid with preliminary materials:
--------------------------------------------------------------------------------
|_| 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................................... 9:00 a.m. Pacific Daylight Time
on June 12, 2003
PLACE.................................. Tag-It Pacific, Inc.'s Corporate
Headquarters at 21900 Burbank
Boulevard, Suite 270, Woodland
Hills, California 91367.
ITEMS OF BUSINESS...................... (1) To elect three Class III
members of the Board of
Directors for three-year
terms. The persons
nominated by our Board of
Directors (Messrs. Mark
Dyne and Colin Dyne and Ms.
Donna Armstrong) 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
2,277,500 shares to
2,577,500 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
18, 2003.
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 24, 2003 /s/ Ronda Sallmen
--------------------------------
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.
1
TAG-IT PACIFIC, INC.
21900 BURBANK BOULEVARD, SUITE 270,
WOODLAND HILLS, CALIFORNIA 91367
PROXY STATEMENT
--------------------------------------------------------------------------------
These Proxy materials are delivered in connection with the solicitation
by the Board of Directors of Tag-It Pacific, Inc., a Delaware corporation
("Tag-It," the "Company", "we", or "us"), of Proxies to be voted at our 2003
Annual Meeting of stockholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of stockholders on June
12, 2003, beginning at 9:00 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 18, 2003 are entitled to
receive this notice and to vote their shares at the Annual Meeting. As of April
18, 2003, there were 9,619,909 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 18,
2003, the outstanding shares of convertible redeemable series C preferred stock
were convertible into 607,288 shares of common stock, which shares are entitled
to vote with our common stock.
MAILING OF PROXY STATEMENTS.
We anticipate mailing this Proxy Statement and the accompanying Proxy
to stockholders on or about May 1, 2003.
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.
2
VOTING.
Each share of Tag-It common stock is entitled to one vote on each
matter properly brought before the meeting. In addition, each share of
convertible redeemable series C preferred stock is entitled to one vote for each
share of common stock into which it is convertible on each matter properly
brought before the meeting. Abstentions will be counted toward the tabulation of
votes cast on proposals submitted to stockholders and will have the same effect
as negative votes, while broker non-votes will not be counted as votes cast for
or against such matters.
ELECTION OF DIRECTORS.
The three nominees for Class III 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 2,277,500 shares to 2,577,500 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.
In the event a shareholder proposal was not submitted to the Company
prior to April 16, 2003, the enclosed Proxy will confer authority on the
Proxyholders to vote the shares in accordance with their best judgment and
discretion if the proposal is presented at the Meeting. As of the date hereof,
no shareholder proposal has been submitted to the Company, and management is not
aware of any other matters to be presented for action at the Meeting. However,
if any other matters properly come before the Meeting, the Proxies solicited
hereby will be voted by the Proxyholders in accordance with the recommendations
of the Board of Directors. Such authorization includes authority to appoint a
substitute nominee for any Board of Directors' nominee identified herein where
death, illness or other circumstance arises which prevents such nominee from
serving in such position and to vote such Proxy for such substitute nominee.
3
ITEM 1: ELECTION OF DIRECTORS
--------------------------------------------------------------------------------
Item 1 is the election of three 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 III directors whose terms expire at the 2003 Annual Meeting
are Mark Dyne, Colin Dyne and Donna Armstrong. The Board of Directors has
nominated Mark Dyne, Colin Dyne and Donna Armstrong to serve as Class III
directors for terms expiring in 2006. The Class I directors are serving terms
that expire in 2004, and the Class II directors are serving terms that expire in
2005. Three Class III 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 III directors:
Mark Dyne
Colin Dyne
Donna Armstrong
If elected, Mark Dyne, Colin Dyne and Donna Armstrong are expected to
serve until the 2006 Annual Meeting of stockholders. The three nominees for
election as Class III 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.
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 18, 2003:
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
---- --- -------- --------
CLASS III DIRECTOR NOMINEES:
-----------------------------
(terms expiring in 2003)
Mark Dyne (3)............... 42 1997 Chairman of the Board of
Directors
Colin Dyne (3)............... 40 1997 Chief Executive Officer,
President and Director
Donna Armstrong.............. 41 2001 Director
CONTINUING DIRECTORS:
CLASS I DIRECTORS
(terms expiring in 2004)
Kevin Bermeister............. 42 1999 Director
Brent Cohen.................. 44 1998 Director
CLASS II DIRECTORS (1)
(terms expiring in 2005)
Michael Katz................. 61 1998 Director
Jonathan Burstein (2)........ 36 1999 Vice President of
Operations and Director
OTHER OFFICERS:
Jonathan Markiles............ 38 Secretary and Vice
President of Strategic
Planning and Business
Development
Ronda Sallmen................ 37 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.
5
CLASS III DIRECTOR NOMINEES: TERMS EXPIRING IN 2003
MARK DYNE Mr. Dyne has served as Chairman of the
Board of Directors since 1997. He also
serves as Chairman of the Board of
Directors of Brilliant Digital
Entertainment, Inc., a publicly traded
corporation. Mr. Dyne currently serves as
the Chief Executive Officer and the
Managing Director of EuroPlay Capital
Advisors, LLC, a merchant banking and
advisory firm. He is a founder and former
director of Sega Ozisoft Pty Ltd., a
leading distributor of entertainment
software in both Australia and New
Zealand. Mr. Dyne previously served as
Chairman and Chief Executive Officer of
Sega Gaming Technology Inc. (USA), a
gaming company. Mr. Dyne also served as
Chairman and Chief Executive Officer of
Virgin Interactive Entertainment Ltd., a
distributor of computer software programs
and video games based in London, England.
Mr. Dyne was a founder and director 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.
6
CLASS I DIRECTORS: 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
CLASS II DIRECTORS: TERMS EXPIRING IN 2005
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. From 1987 to June 2002, Mr.
Katz 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.
7
OTHER OFFICERS
JONATHAN MARKILES Mr. Markiles is our Vice President,
Strategic Planning and Business
Development, and Secretary. Mr. Markiles
joined Tag-It, Inc. in May 1994 as our
general manager where he has been
responsible for production, distribution
and international operations. Before
joining Tag-It, Inc., Mr. Markiles
received his MBA from the University of
Southern California in May 1994. From
1987 until August 1992, Mr. Markiles held
various operational positions with
Windshields America, Inc., a national
chain of autoglass stores.
RONDA SALLMEN Ms. Sallmen has served as our Chief
Financial Officer since she joined us in
June 2000. Before joining us, Ms. Sallmen
was a senior manager at BDO Seidman, LLP,
independent public accountants, where she
was the director of the Apparel Industry
Practice in Los Angeles, California. In
this role, she was responsible for
providing audit, transaction support and
business advisory services to private and
publicly held companies. Ms. Sallmen has
over ten years experience in the apparel
industry. She was also a member of the
advisory board of a leading apparel
industry group. Ms. Sallmen is a
certified public accountant and a member
of the American Institute of Certified
Public Accountants and the California
State Society of Certified Public
Accountants.
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 five general meetings, including two
meetings of a special committee designated by the Board of Directors, during
fiscal 2002. 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
2002. 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 approves 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 seven
meetings during fiscal 2002.
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 three meetings and acted two
additional times by unanimous written consent during fiscal 2002.
8
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 25,000 options each to purchase shares of the Company's
common stock in April 2003. 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.
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
LONG TERM
COMPENSATION
------------
ANNUAL NUMBER OF
FISCAL YEAR COMPENSATION SECURITIES
NAME AND ENDED ------------------- UNDERLYING
PRINCIPAL POSITION DECEMBER 31 SALARY OTHER (1) OPTIONS
-------------------------------- ----------- -------- --------- ------------
Colin Dyne...................... 2002 $438,305 $ 55,787 100,000
Chief Executive Officer, 2001 326,536 51,680 50,000
President and Director 2000 317,000 54,940 140,000
Jonathan Burstein............... 2002 $197,980 $ 21,005 25,000
Vice President of 2001 187,596 22,434 15,000
Operations and Director 2000 167,980 27,942 50,000
Ronda Sallmen (2)............... 2002 $118,592 $ 11,248 25,000
Chief Financial Officer 2001 142,308 8,833 20,000
2000 74,505 1,554 55,000
Jonathan Markiles .............. 2002 $200,000 $ -- --
Vice President of Strategic 2001 190,769 -- 15,000
Planning and Business 2000 178,846 -- 30,000
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.
9
OPTION GRANTS IN FISCAL 2002
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 2002. This information includes hypothetical potential gains from stock
options granted in fiscal 2002. These hypothetical gains are based entirely on
assumed annual growth rates of 5% and 10% in the value of our common stock price
over the 10-year life of the stock options granted in fiscal 2002. 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 2002
PERCENT OF
TOTAL
OPTIONS POTENTIAL
NUMBER OF GRANTED TO REALIZABLE VALUE
SECURITIES EMPLOYEES EXERCISE AT ASSUMED
UNDERLYING IN OR BASE RATE OF STOCK PRICE
OPTIONS FISCAL PRICE PER EXPIRATION APPRECIATION FOR
NAME GRANTED YEAR(1) SHARE(2) DATE OPTION TERM(3)
---- ----------- ---------- -------- ----------- --------------------
5% 10%
-- ---
Colin Dyne......... 100,00(4) 37.0% $ 3.63 12/31/12 $ 228,289 $ 578,529
Jonathan Burstein.. 25,00(5) 9.3 3.63 12/31/12 57,072 144,632
Ronda Sallmen...... 25,00(5) 9.3 3.63 12/31/12 57,072 144,632
Jonathan Markiles.. -- -- -- -- -- --
----------
(1) We granted options covering an aggregate of 270,000 shares of common
stock to employees during the fiscal year ended December 31, 2002.
(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 potential realizable value is based on the assumption that the
Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
amounts are calculated pursuant to applicable requirements of the SEC
and do not represent a forecast of the future appreciation of the
Common Stock.
(4) These options vested immediately upon the date of the grant.
(5) These options vest quarterly over a one-year period beginning on the
date of grant.
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 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 ($3.63 per share) on December 31,
2002, the last trading day during 2002, as reported by the American Stock
Exchange. No options were exercised by the Named Executive Officers during
fiscal 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 2002 DECEMBER 31, 2002
------------------ -------- -------- --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Colin Dyne ....... -- $ -- 435,000 -- $ -- $ --
Jonathan Burstein. -- -- 115,000 25,000 69,900 --
Ronda Sallmen..... -- -- 75,000 25,000 -- --
Jonathan Markiles. -- -- 80,000 -- 46,600 --
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. Currently, the maximum number of shares of common stock that may
be issued pursuant to awards granted under the 1997 Plan is 2,277,500, 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, 2002, 259,000 shares of common stock remained
available for grant of awards to eligible participants under the 1997 Plan.
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 2002 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 2002 will be
fully deductible. With respect to compensation to be paid to executives in 2003
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
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 2002, the audit committee:
- Reviewed and discussed the audited financial statements for
the year ended December 31, 2002 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, 2002 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, 2002 and the reviews of the financial statements included in the
Company's Forms 10-Q for that fiscal year, were $109,000.
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, 2002.
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, 2002, were $1,870.
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
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, 2002, 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.
[PERFORMANCE GRAPH OMITTED]
Cumulative Total Return
--------------------------------------------------------------------------------------
January 23, December 31, December 31, December 31, December 31, December 31,
1998 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------------
Tag-It Pacific, Inc. 100.00 109.38 140.63 101.58 98.75 90.75
AMEX Market Value 100.00 107.33 137.12 140.90 134.27 120.42
Dow Jones Textiles &
Apparel 100.00 83.74 81.52 99.06 99.90 93.10
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 2002, or which is presently proposed.
TRANSACTIONS INVOLVING OUR OFFICERS, DIRECTORS, OR THEIR IMMEDIATE FAMILY AND
AFFILIATES
Pursuant to a consulting agreement, we paid $150,000 in consulting fees
to Diversified Consulting, LLC, a company owned by Audrey Dyne, mother of Colin
Dyne and Mark Dyne, for the year ended December 31, 2002. We also paid $70,800
in consulting fees to Kevin Bermeister, a director, for the year ended December
31, 2002.
As of December 31, 2002, we were indebted to Monto Holdings Pty. Ltd.
in the aggregate amount of $60,919. Mark Dyne, our Chairman, holds a significant
equity interest in Monto Holdings Pty. Ltd. Kevin Bermeister, one of our
directors, also holds an equity interest in Monto Holdings Pty. Ltd. The loans
from Monto Holdings Pty. Ltd. are all evidenced by promissory notes 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.
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, 2002, we were indebted to Mr. Dyne in the aggregate amount of
$579,795.
As of December 31, 2002, Colin Dyne was indebted to Tag-It, Inc. as
part of a series of loans in the aggregate amount of $636,669. 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 aggregate net amount due from Mr. Dyne during the year
ended December 31, 2002 amounted to $451,669.
As of December 31, 2002, Jonathan Burstein was indebted to Tag-It, Inc.
as part of a series of loans in the aggregate amount of $92,689, the largest
aggregate balance during the year ended December 31, 2002. This indebtedness
bears interest of 7.5 % and is due and payable on demand.
In a series of transactions 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 Mr.
Dyne an aggregate of 166,666 shares of common stock at a price per share of
$3.00 for aggregate proceeds of $499,998. Pursuant to the stock and warrant
purchase agreements, 83,334 warrants to purchase common stock were issued to Mr.
Dyne. The warrants are exercisable immediately after closing, one half of the
warrants at $4.34 per share and the second half at $4.73 per shares,
representing 110% and 120%, respectively, of the market value of our common
stock on the date of closing. The exercise price for the warrants shall be
adjusted upward by 25% of the amount, if any, that the market price of our
common stock on the exercise date exceeds the initial exercise price (as
adjusted) up to a maximum exercise price of $5.25. The warrants have a term of
four years. The shares contain restrictions related to the sale or transfer of
the shares, registration and voting rights.
On October 4, 2002, we entered into a note payable agreement with
Harris Toibb, the beneficial owner of approximately 13% of our common stock at
April 18, 2003, in the amount of $500,000 to fund additional working
15
capital requirements. The note payable was unsecured, due on demand, accrued
interest at 4% and was subordinated to UPS Capital. This note was re-paid on
February 28, 2003.
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 25.6% of the outstanding shares of
our common stock at December 31, 2002. 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, 2002, 2001 and 2000 amounted to
approximately $24,947,000, $18,438,000 and $23,760,000. As of December 31, 2002,
2001 and 2000, accounts receivable related parties included approximately
$9,362,000, $4,995,000 and $8,270,000 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. During 2002, KG Investments, LLC transferred 195,000
shares to Gerard Guez and 1,195,000 shares to Todd Kay.
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. Under the terms of the supply agreement, we
issued 1,000,000 shares of restricted common stock to Commerce Investment Group,
LLC, or approximately 10.7% the outstanding shares of our common stock at
December 31, 2002. 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, 2002, 2001 and 2000 amounted to approximately $16,946,000,
$9,016,000 and $1,878,000. As of December 31, 2002, 2001 and 2000, accounts
receivable related parties included approximately $5,408,000, $2,920,000 and
$771,000 due from Azteca. Terms are net 60 days. Transportation fees paid to a
company that has common ownership with Azteca for the years ended December 31,
2002 and 2001 amounted to $225,000 and $15,000.
In accordance with the series C preferred stock purchase agreement
entered into by the Company and Coats North America Consolidated, Inc., an
affiliate of Coats, plc, on September 20, 2001, 759,494 shares of series C
convertible redeemable preferred stock were issued to Coats North America
Consolidated, Inc. in exchange for an equity investment from Coats North America
Consolidated of $3 million cash. Pursuant to the series C preferred stock
purchase agreement, and for so long as Coats holds 66 2/3% of the shares of the
series C preferred stock, the Company has agreed to use commercially reasonable
efforts to cause a representative designated by Coats to be nominated to serve
as director of our company. Each holder of the series C preferred shares has the
right to vote with the common stock based on the number of common shares that
the series C preferred shares could then be converted into on the record date.
In connection with the series C preferred stock purchase agreement, the Company
also entered into a 10-year co-marketing and supply agreement with Coats that
provides for selected introductions into Coats' customer base and the Company's
trim packages will exclusively offer thread manufactured by Coats. Total
purchases from Coats for the years ended December 31, 2002 and 2001 amounted to
approximately $12,276,000 and $18,247,000.
16
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 2,277,500 shares to
2,577,500 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 18, 2003, only 259,000 shares remained available for grants
of awards under the 1997 Plan. The Board of Directors believes that the ability
to grant stock-based awards is important to the future success of the Company.
The grant of stock options and other stock-based awards can motivate high levels
of performance and provide an effective means of recognizing employee
contributions to the success of the Company. In addition, stock-based
compensation can be valuable in recruiting and retaining highly qualified
technical and other key personnel who are in great demand as well as rewarding
and providing incentives to our current employees. The increase in the number of
shares available for awards under the 1997 Plan will enable the Company to
continue to realize the benefits of granting stock-based compensation.
At April 18, 2003, the last reported sales price of the common stock on
the American Stock Exchange was $4.22 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) to determine the duration and purpose of leaves of absences which may
be granted to holders of awards without constituting termination of their
employment, (vi) authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the 1997 Plan, (vii) by
resolution adopted by the Board, to authorize one or more officers of the
Company to designate eligible employees of the Company or any of its
subsidiaries to be recipients of awards and/or determine the number of such
awards to be received by such employees, provided that the resolution so
authorizing such officer or officers shall specify the total number of awards
such officer or officers may award, and (viii) 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 18, 2003, approximately 72 officers, directors and
employees of the Company were eligible to receive awards under the 1997 Plan.
17
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 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.
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.
18
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 18, 2003, 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.
19
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. The Company will
not be allowed a deduction for federal income tax purposes at the time of the
grant or exercise of an Incentive Stock Option. There are also no federal income
tax consequences to the Company as a result of the disposition of common stock
acquired upon exercise of an Incentive Stock Option if the disposition is not a
"disqualifying disposition." At the time of a disqualifying disposition by an
optionee, the Company will be entitled to a deduction for the amount received by
the optionee to the extent that such amount is taxable to the optionee at
ordinary income tax rates.
CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally,
the Company will be entitled to a deduction for federal income tax purposes in
the Company's taxable year in which the optionee's taxable year of income
inclusion ends and in the same amount as the optionee is considered to have
realized ordinary income in connection with the exercise of Non-statutory Stock
Options.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information as of December 31,
2002 regarding equity compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE REMAINING AVAILABLE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
----------------------- -------------------- --------------------
Equity compensation plans
approved by security holders..... 1,733,500 $3.48 544,000
Equity compensation plans not
approved by security holders..... 608,122 $4.35 -
----------------------- -------------------
Total......................... 2,341,622 $3.71 544,000
======================= ===================
See Note 13 to the Consolidated Financial Statements in Item 8 of the
Company's Annual Report on Form 10-K filed for the fiscal year ended December
31, 2002 for information regarding the material features of the above plans.
Each of the above plans provides that the number of shares with respect to which
options and warrants may be granted, and the number of shares of Common Stock
subject to an outstanding option or warrant, shall be proportionately adjusted
in the event of a subdivisions or consolidation of shares or the payment of a
stock dividend on Common Stock.
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.
20
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial
ownership of our common stock as of April 18, 2003:
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 18, 2003. Unless
otherwise indicated, the persons named in this table have sole voting and sole
investment power with respect to all shares shown as beneficially owned, subject
to community property laws where applicable.
The address of each person listed is in our care, at 21900 Burbank
Boulevard, Suite 270, Woodland Hills, California 91367, unless otherwise set
forth below such person's name.
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT
SHARES OF CLASS
-------------------------------------------- --------- --------
DIRECTORS:
Colin Dyne (1).............................. 2,192,580 21.6%
Mark Dyne (2)............................... 1,090,512 10.8%
Kevin Bermeister (3)........................ 222,117 2.3%
Jonathan Burstein (4)....................... 223,288 2.3%
Brent Cohen (5)............................. 70,000 *
Michael Katz (6)............................ 50,000 *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
Jonathan Markiles (7) ...................... 133,248 1.4%
Ronda Sallmen (8) .......................... 87,500 *
5% HOLDERS:
KG Investment, LLC
3151 East Washington Blvd.
Los Angeles, CA 90023...................... 2,390,000 24.8%
Harris Toibb
307 21st Street
Santa Monica, CA 90402 (9)................. 1,290,498 13.0%
21
Commerce Investment Group, LLC
5804 E. Slauson Ave., Commerce, CA 90046 ... 1,000,000 10.4%
The Estate of Harold Dyne (10).............. 757,507 7.8%
Coats North America Consolidated, Inc.
Two Lake Point Plaza
4135 South Stream Blvd.
Charlotte, NC 28217 (11) .................. 607,288 5.9%
Talon, Inc.
c/o Grupo Industrial Cierres Ideal
Paseo de la Reforma Num. 2608 PH
Col. Lomas Altas
Mexico D.F., 11950 ......................... 500,000 5.2%
Directors and executive officers as a group
(9 persons) (12) ........................... 4,069,245 36.5%
* Less than one percent.
(1) Includes 535,000 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 268,000 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) Includes 65,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(4) Includes 127,500 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(5) Consists of 70,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(6) Consists of 50,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(7) Includes 80,000 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) Consists of 87,500 shares of common stock reserved for issuance upon
exercise of stock options which are currently exercisable.
(9) Includes 333,332 shares of common stock reserved for issuance upon
exercise of warrants which are currently exercisable.
(10) 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.
(11) Consists of 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, 2003 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 1,283,000 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.
22
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,
2002, 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: Colin Dyne, Jonathan Burstein and Ronda Sallmen
each filed a Form 5 on February 12, 2003 reporting one transaction occurring on
December 31, 2002, which transactions should have been previously reported on a
Form 4.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2004 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, 2004. In addition, in the event
a stockholder proposal is not received by the Company by April 16, 2004, the
Proxy to be solicited by the Board of Directors for the 2004 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 2004 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
2004 Annual Meeting is advanced or delayed more than 30 days from the date of
the 2003 Annual Meeting, stockholder proposals intended to be included in the
proxy materials for the 2004 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 2004 Annual Meeting. Upon determination by the Company that
the date of the 2004 Annual Meeting will be advanced or delayed by more than 30
days from the date of the 2003 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 2002 and have been selected by the Board of Directors to serve as
independent auditors for fiscal 2003. 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.
23
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, 2002, 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 24, 2003
24
APPENDIX "A"
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1997 Stock Plan (the "Plan") is to provide incentives and
rewards to selected eligible directors, officers, employees and consultants of
Tag-It Pacific, Inc. (the "Company") or its subsidiaries in order to assist the
Company and its subsidiaries in attracting, retaining and motivating those
persons by providing for or increasing the proprietary interests of those
persons in the Company, and by associating their interests in the Company with
those of the Company's stockholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company (the
"Board"), or a committee of the Board (the "Committee") whose members shall
serve at the pleasure of the Board. If administration is delegated to the
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan as may be
adopted from time to time by the Board.
The Board shall have all the powers vested in it by the terms of the Plan,
including 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; (vii) by resolution adopted by
the Board, to authorize one or more officers of the Company to do one or both of
the following: (a) designate eligible employees of the Company or any of its
subsidiaries to be recipients of Awards and (b) determine the number of such
Awards to be received by such employees, provided that the resolution so
authorizing such officer or officers shall specify the total number of Awards
such officer or officers may award; and (viii) 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,
A-1
by its terms, involves or might involve or be made with reference to the
issuance of (i) shares of the Common Stock, $.001 par value per share, of the
Company (the "Common Stock") or (ii) a "derivative security" (as that term is
defined in Rule 16a-1(c) of the Rules and Regulations of the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, as
the same may be amended from time to time) with an exercise or conversion price
related to the Common Stock or with a value derived from the value of the Common
Stock.
(b) TYPES OF AWARDS. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) CONSIDERATION. Common Stock may be issued pursuant to an Award for any
lawful consideration as determined by the Board, including, without limitation,
a cash payment, services rendered, or the cancellation of indebtedness.
(d) GUIDELINES. The Board may adopt, amend or revoke from time to time written
policies implementing the Plan. Such policies may include, but need not be
limited to, the type, size and term of Awards to be made to participants and the
conditions for payment of such Awards.
(e) TERMS AND CONDITIONS. Subject to the provisions of the Plan, the Board, in
its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") (an "Incentive Stock Option");
(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.
A-2
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
2,277,500 shares of Common Stock, subject to adjustment as provided in Section 7
of the Plan. Shares of Common Stock subject to the Plan may consist, in whole or
in part, of authorized and unissued shares or treasury shares. Any shares of
Common Stock subject to an Award which for any reason expires or is terminated
unexercised as to such shares shall again be available for issuance under the
Plan. For purposes of this Section 5, the aggregate number of shares of Common
Stock that may be issued at any time pursuant to Awards granted under the Plan
shall be reduced by: (i) the number of shares of Common Stock previously issued
pursuant to Awards granted under the Plan, other than shares of Common Stock
subsequently reacquired by the Company pursuant to the terms and conditions of
such Awards and with respect to which the holder thereof received no benefits of
ownership, such as dividends; and (ii) the number of shares of Common Stock
which were otherwise issuable pursuant to Awards granted under this Plan but
which were withheld by the Company as payment of the purchase price of the
Common Stock issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance.
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable in cash,
shares of Common Stock or any combination thereof. The Board may, upon request
of a Participant, determine that all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock or
other securities then subject to the Plan by reason of any stock split, reverse
stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
as a class (other than cash dividends), then the Board may, but it shall not be
required to, make such equitable adjustments to the Plan and the Awards
thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under the Plan, (ii) the maximum number and
type of shares or other securities that may be issued pursuant to Incentive
Stock Options and other Awards thereafter granted under the Plan; and (iii) the
maximum number of securities with respect to which Awards may thereafter be
granted to any Participant in any fiscal year) as the Board in its sole
discretion determines appropriate, including any adjustments in the maximum
number of shares referred to in Section 5 of the Plan. Such adjustments shall be
conclusive and binding for all purposes of the Plan.
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.
A-3
(d) ASSIGNMENT OR TRANSFER. Subject to the discretion of the Board, and except
with respect to Incentive Stock Options which are not transferable except by
will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by written
agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) WITHHOLDING TAXES. The Company shall have the right to deduct from all
Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
the restrictions imposed by any and all governmental authorities.
(g) NO RIGHTS TO AWARD. No Participant or other person shall have any right to
be granted an Award under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any Participant any right to be retained
in the employ of the Company or any of its subsidiaries or shall interfere with
or restrict in any way the rights of the Company or any of its subsidiaries,
which are hereby reserved, to discharge a Participant at any time for any reason
whatsoever, with or without good cause.
(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.
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 12, 2003,
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 III directors:
Mark Dyne Colin Dyne Donna Armstrong
|_| 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 24, 2003 and the accompanying Proxy Statement relating to
the Annual Meeting.
Dated:___________________________, 2003
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