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 [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
TAG-IT PACIFIC, INC.
================================================================================
(Name of Registrant)
================================================================================
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously 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 .............................. 11:00 a.m. Pacific Daylight Time on
May 12, 2004
PLACE ............................. Tag-It Pacific, Inc.'s Corporate
Headquarters at 21900 Burbank
Boulevard, Suite 270, Woodland Hills,
California 91367.
ITEMS OF BUSINESS ................. (1) To elect two Class I members
of the Board of Directors
for three-year terms. The
persons nominated by our
Board of Directors (Messrs.
Kevin Bermeister and Brent
Cohen) are described in the
accompanying Proxy
Statement.
(2) To approve an amendment to
the Company's 1997 Stock
Plan to increase the maximum
number of shares of common
stock that may be issued
pursuant to awards granted
under the plan from
2,577,500 shares to
3,077,500 shares; and
(3) To transact such other
business as may properly
come before the Annual
Meeting and any adjournment
or postponement.
RECORD DATE ....................... You can vote if you were a
stockholder of the Company at the
close of business on March 19, 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 5, 2003
/s/ Ronda Ferguson
------------------------
CHIEF FINANCIAL OFFICER
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS
PROMPTLY AS POSSIBLE. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN
SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD
BE COMPLETED AND RETURNED.
TAG-IT PACIFIC, INC.
21900 BURBANK BOULEVARD, SUITE 270,
WOODLAND HILLS, CALIFORNIA 91367
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 2004
Annual Meeting of stockholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of stockholders on May 12,
2004, beginning at 11:00 a.m. Pacific Daylight Time. The meeting will be held at
the Company's corporate headquarters at 21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367.
STOCKHOLDERS ENTITLED TO VOTE.
Holders of Tag-It common stock at the close of business on March 19,
2004 are entitled to receive this notice and to vote their shares at the Annual
Meeting. As of March 19, 2004, there were 18,035,316 shares of common stock
outstanding.
MAILING OF PROXY STATEMENTS.
We anticipate mailing this Proxy Statement and the accompanying Proxy
to stockholders on or about April 9, 2004.
PROXIES.
Your vote is important. If your shares are registered in your name, you
are a share owner of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All share owners can vote by written Proxy card. Your submitting the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE MEETING. If you are a share owner of record, you may
revoke your Proxy at any time before the meeting either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly executed Proxies received prior to
the Annual Meeting, and not revoked, will be voted at the Annual Meeting in
accordance with the instructions indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board of Directors.
QUORUM.
The presence, in person or by Proxy, of a majority of the votes
entitled to be cast by the stockholders entitled to vote at the Annual Meeting
is necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Annual Meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING.
Each share of Tag-It common stock is entitled to one vote on each
matter properly brought before the meeting. Abstentions will be counted toward
the tabulation of votes cast on proposals submitted to stockholders and will
have the same effect as negative votes, while broker non-votes will not be
counted as votes cast for or against such matters.
ELECTION OF DIRECTORS.
The two nominees for Class I director receiving the highest number of
votes at the Annual Meeting will be elected. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
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 2,577,500 shares to 3,077,500 shares. This amendment will
require the affirmative vote of a majority of the votes entitled to be cast by
holders of outstanding shares of common stock that are present or represented by
proxy at the Annual Meeting.
OTHER MATTERS.
At the date this Proxy Statement went to press, we do not know of any
other matter to be raised at the Annual Meeting.
In the event a shareholder proposal was not submitted to the Company
prior to the date of this Proxy Statement, 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.
2
ITEM 1: ELECTION OF DIRECTORS
--------------------------------------------------------------------------------
Item 1 is the election of two members of the Board of Directors. In
accordance with our Certificate of Incorporation, the Board of Directors is
grouped into three classes. At each Annual Meeting, directors constituting one
class are elected, each for a three-year term. Our bylaws presently provide that
the number of directors shall not be less than two nor more than nine, with the
exact number to be fixed from time to time by resolution of our Board of
Directors. The number of directors is currently fixed at eight.
The Class I directors whose terms expire at the 2004 Annual Meeting are
Kevin Bermeister and Brent Cohen. The Board of Directors has nominated Kevin
Bermeister and Brent Cohen to serve as Class I directors for terms expiring in
2007. The Class II directors are serving terms that expire in 2005, and the
Class III directors are serving terms that expire in 2006. Two Class I directors
will be elected at the Annual Meeting.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
will be voted for such other nominee(s) as shall be designated by the then
current Board of Directors to fill any vacancy. The Company has no reason to
believe that any nominee will be unable or unwilling to serve if elected as a
director.
The Board of Directors proposes the election of the following nominees
as Class I directors:
Kevin Bermeister
Brent Cohen
If elected, Kevin Bermeister and Brent Cohen are expected to serve
until the 2007 Annual Meeting of stockholders. The two nominees for election as
Class I directors at the Annual Meeting who receive the highest number of
affirmative votes will be elected.
The principal occupation and certain other information about the
nominees, other directors whose terms of office continue after the Annual
Meeting, and certain executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE NOMINEES LISTED ABOVE.
3
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to nominees,
continuing directors and officers of the Company as of March 19, 2004:
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
---- --- -------- --------
CLASS I DIRECTOR NOMINEES:
(terms expiring in 2004)
Kevin Bermeister.......... 43 1999 Director
Brent Cohen............... 45 1998 Director
CONTINUING DIRECTORS:
CLASS II DIRECTORS (1)
(terms expiring in 2005)
Michael Katz.............. 62 1998 Director
Jonathan Burstein (2)..... 37 1999 Vice President of
Operations and Director
CLASS III DIRECTORS
(terms expiring in 2006)
Mark Dyne (3)............ 43 1997 Chairman of the Board of
Directors
Colin Dyne (3)............ 41 1997 Chief Executive Officer,
President and Director
G. Maxwell Perks.......... 56 2003 Director
OTHER EXECUTIVE OFFICERS:
Jonathan Markiles......... 39 Secretary and Vice
President of Strategic
Planning and Business
Development
Ronda Ferguson............ 38 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.
4
CLASS I DIRECTOR NOMINEES: TERMS EXPIRING IN 2004
KEVIN BERMEISTER Mr. Bermeister has served on our Board of
Directors since 1999. He has been a
director of Brilliant Digital
Entertainment, Inc. since August 1996 and
has served as its President since October
1996 and as its Chief Executive Officer
since the beginning of 2001. Mr.
Bermeister is a director of Sega Ozisoft
Pty. Ltd. and previously served as its
Co-Chief Executive Officer. Mr. Bermeister
is a founder of Sega Ozisoft which
commenced business in 1982. Mr. Bermeister
also is a director of Packard Bell NEC
Australia Pty. Ltd. and Jacfun Pty. Ltd.
Jacfun owns the Darling Harbour property
occupied by the Sega World indoor theme
park in Sydney, Australia. Mr. Bermeister
has served on numerous advisory boards,
including Virgin Interactive Entertainment
Ltd.
MEMBER: COMPENSATION COMMITTEE, AUDIT
COMMITTEE, NOMINATING COMMITTEE
BRENT COHEN Mr. Cohen has served on the Board of
Directors since 1998. Mr. Cohen served as
President and Chief Operating Officer and
was a member of the Board of Directors of
First Advantage Corporation (formed by the
merger of US Search and First American
Financial screening companies) until June
2003. Mr. Cohen served as Chairman of the
Board, President and Chief Executive
Officer of US Search from February 2000
until June 2003. 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, NOMINATING COMMITTEE,
GOVERNANCE 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, NOMINATING
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.
5
CLASS III DIRECTOR: TERMS EXPIRING IN 2006
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.
MEMBER: GOVERNANCE COMMITTEE
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.
G. MAXWELL PERKS Dr. Perks was appointed as a member to the
Board of Directors in October 2003. From
1972 to present, Dr. Perks has been
employed by the UK-based thread
conglomerate Coats plc where he has held
several key positions within its
international businesses. He currently
serves as CEO of Coats North American. Dr.
Perks received his Ph.D. in Chemistry from
Queens University in Belfast, N. Ireland.
OTHER EXECUTIVE 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 FERGUSON Ms. Ferguson has served as our Chief
Financial Officer since she joined us in
June 2000. Before joining us, Ms. Ferguson
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. Ferguson 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. Ferguson 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.
6
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 held 66 2/3% of the shares of the our series C
preferred stock that it purchased in September 2001, we agreed to use
commercially reasonable efforts to cause a representative designated by Coats
North America Consolidated to be nominated to serve as a director of our
company. G. Maxwell Perks currently serves as one of our directors pursuant to
this agreement. In February 2004, Coats North America Consolidated converted all
759,494 shares of Series C Preferred Stock, plus $458,707 of accrued dividends,
into 700,144 shares of our common stock and subsequently sold these common
shares to an unrelated party. As a result, we are no longer obligated to cause a
representative designated by Coats North America Consolidated to be nominated to
serve as a member of our board of directors.
BOARD MEETINGS AND COMMITTEES.
The Board of Directors held ten general meetings during fiscal 2003.
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 2003, with
the exception of Kevin Bermeister who attended 50% of the Board of Director
meetings and Donna Armstrong who attended 38% of the Board of Director meetings.
While the Company has not established a policy with respect to members of the
Board of Directors attending annual meetings, directors are generally in
attendance at the annual meeting of shareholders. The Board of Directors
maintains an audit committee, a compensation committee, a nominating committee
and a governance committee.
AUDIT COMMITTEE. The audit committee currently consists of Messrs.
Bermeister, Cohen and Katz. The role and responsibilities of the audit committee
are set forth in a written charter adopted by the Board and approved by the
committee. 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 ("AMEX"). The audit committee held four meetings during fiscal
2003. The audit committee operates pursuant to a written charter, a copy of
which is attached to this Proxy Statement as Appendix A.
Each audit committee member meets the AMEX financial knowledge
requirements, and the Board of Directors has further determined that each of
Messrs. Bermeister, Cohen and Katz (i) are an "audit committee financial expert"
as such term is defined in Item 401(h) of Regulation S-K promulgated by the SEC
and (ii) also meets the AMEX professional experience requirements.
COMPENSATION COMMITTEE. The compensation committee currently consists
of Messrs. Bermeister and Cohen. The compensation committee is responsible for
considering and making recommendations to the Board of Directors regarding
executive compensation and is responsible for administering our stock option
plan and executive incentive compensation. The compensation committee did not
hold any meetings during fiscal 2003. The compensation committee acted thee
times by unanimous written consent during fiscal 2003.
NOMINATING COMMITTEE. The nominating committee currently consists of
Messrs. Bermeister, Cohen and Katz. The nominating committee is responsible for
considering and approving nominations for candidates for director, including
determining the appropriate qualifications and experience required of such
candidates, and related matters. The nominating committee was established in
February 2004 and did not hold any meetings during fiscal 2003. The members of
the nominating committee are all independent directors within the meaning of
applicable AMEX listing standards. The nominating committee operates pursuant to
a written charter, a copy of which is attached to this Proxy Statement as
Appendix B.
7
In carrying out its function to nominate candidates for election to the
Board of Directors, the nominating committee considers the mix of skills,
experience, character, commitment, and diversity of background, all in the
context of the requirements of the Board of Directors at that point in time. The
nominating committee believes that each candidate should be an individual who
has demonstrated integrity and ethics in such candidate's personal and
professional life, has an understanding of elements relevant to the success of a
publicly-traded company and has established a record of professional
accomplishment in such candidate's chosen field. Each candidate should be
prepared to participate fully in board activities, including attendance at, and
active participation in, meetings of the Board of Directors, and not have other
personal or professional commitments that would, in the nominating committee's
judgment, interfere with or limit such candidate's ability to do so. The
nominating committee has no stated specific, minimum qualifications that must be
met by a candidate for a position on our Board of Directors.
The nominating committee's methods for identifying candidates for
election to the Board of Directors (other than those proposed by our
stockholders, as discussed below) include the solicitation of ideas for possible
candidates from a number of sources--members of the Board of Directors; our
executives; individuals personally known to the members of the Board of
Directors; and other research. The nominating committee may also from time to
time retain one or more third-party search firms to identify suitable
candidates.
A Tag-It stockholder may nominate one or more persons for election as a
director at an annual meeting of stockholders if the stockholder complies with
the notice, information and consent provisions contained in our Bylaws. In
addition, the notice must be made in writing and include (i) the qualifications
of the proposed nominee to serve on the Board of Directors, (ii) the principal
occupations and employment of the proposed nominee during the past five years,
(iii) directorships currently held by the proposed nominee and (iv) a statement
that the proposed nominee has consented to the nomination. The recommendation
should be addressed to our Secretary.
GOVERNANCE COMMITTEE. The Governance Committee currently consists of
Messrs. Mark Dyne and Cohen. The governance committee's primary purpose is to
review and make recommendations regarding the functioning of the Board of
Directors as an entity, recommend corporate governance principles applicable to
the Company and assist the Board of Directors in its reviews of the performance
of the Board and each committee.
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, Mr. Mark Dyne,
Messrs. Bermeister, Cohen and Katz, received 25,000 options each to purchase
shares of the Company's common stock in April 2003 and $25,000 each in payment
for service on the Board of directors for fiscal 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.
CODE OF ETHICS.
We have adopted a Code of Ethical Conduct that applies to the our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, as well as to
our other employees and directors generally. A copy of our Code of Ethical
Conduct was filed as an exhibit our Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
8
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS.
Our Board of Directors has adopted three methods by which our
stockholders may communicate with the Board regarding matters of substantial
importance to the Company. These methods are as follows:
1. PROCEDURES FOR SUBMISSION OF COMMUNICATIONS REGARDING AUDIT
AND ACCOUNTING MATTERS. Pursuant to the duties and responsibilities delegated to
the Audit Committee of our Board of Directors in its Audit Committee Charter,
our Audit Committee adopted procedures for (a) the receipt, retention, and
treatment of communications received by us regarding accounting, internal
accounting controls, or auditing matters; and (b) the submission by our
employees, on a confidential and anonymous basis, of communications regarding
questionable accounting or auditing matters. These procedures allow any person
to submit a good faith communication regarding these various audit, internal
accounting control and accounting matters to the Audit Committee, or to our
management, and any employee to do so on a confidential and anonymous basis,
without fear of dismissal or retaliation of any kind. Ultimately, the Audit
Committee will oversee treatment of communications in this area, and therefore
any submissions would be reviewed by those members of the Board of Directors
serving on the Audit Committee. The Audit Committee also may submit such
communications to the Board of Directors for review and oversight as well. The
Procedures for Submission of Audit and Accounting Matters can be found on this
website at www.tagitpacific.com.
2. CODE OF ETHICAL CONDUCT. Our Code of Ethical Conduct, a copy
of which was filed as an exhibit to our Annual Report on Form 10-K for the year
ended December 31, 2003, identifies the e-mail address of our Chief Financial
Officer and a mailing address of the Audit Committee of our Board of Directors.
This allows individuals to contact those Board members in connection with
matters concerning the code and our company's overall ethical values and
standards.
3. INVESTOR RELATIONS. Our investor relations manager, Jonathan
Markiles, addresses all of our investor relations matters. Stockholders are free
to contact Mr. Markiles at info@tagitpacific.com, or our Investor Relations
Department, at 818-444-4100. Mr. Markiles determines whether inquiries or other
communications with respect to investor relations should be relayed to our Board
of Directors or to management. Typical communications relayed to our Board of
Directors or management involve stockholder proposal matters, audit and
accounting matters addressed in item 1 above, and matters related to our code of
ethical conduct addressed in item 2 above.
Each director on our Board of Directors is encouraged to attend our
annual meeting of stockholders. All of our directors attended our 2003 Annual
Meeting of Stockholders.
9
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............................... 2003 $ 452,397 $ 43,602 100,000
Chief Executive Officer, President 2002 438,305 55,787 100,000
and Director 2001 326,536 51,680 50,000
Jonathan Burstein........................ 2003 $ 246,079 $ 17,409 35,000
Vice President of Operations and 2002 197,980 21,005 25,000
Director 2001 187,596 22,434 15,000
Ronda Ferguson........................... 2003 $ 83,613 $ 12,080 25,000
Chief Financial Officer 2002 118,592 11,248 25,000
2001 142,308 8,833 20,000
Jonathan Markiles ....................... 2003 $ 200,000 $ -- --
Vice President of Strategic Planning 2002 200,000 -- --
and Business Development and 2001 190,769 -- 15,000
Secretary
----------
(1) Other compensation indicated in the above table consists of car and
expense allowances and medical and disability insurance.
10
OPTION GRANTS IN FISCAL 2003.
The following table sets forth information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 2003. This information includes hypothetical potential gains from stock
options granted in fiscal 2003. 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 2003. 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 2003
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) 19.6% $ 3.50 12/31/13 $ 220,113 $ 557,810
Jonathan Burstein... 35,00(5) 6.9 3.50 12/31/13 77,040 195,233
Ronda Ferguson...... 25,00(5) 4.9 3.50 12/31/13 55,028 139,452
Jonathan Markiles... -- -- -- -- -- --
----------
(1) We granted options covering an aggregate of 510,000 shares of common
stock to employees during the fiscal year ended December 31, 2003.
(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.
11
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 ($4.49 per share) on December 31,
2003, the last trading day during 2003, as reported by the American Stock
Exchange. No options were exercised by the Named Executive Officers during
fiscal 2003.
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, 2003 DECEMBER 31, 2003
------------------ -------- -------- --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Colin Dyne ....... -- $ -- 535,000 -- $ 299,838 $ --
Jonathan Burstein. -- -- 166,250 8,750 177,888 8,663
Ronda Ferguson.... -- -- 108,750 6,250 76,663 6,188
Jonathan Markiles. -- -- 80,000 -- 81,163 --
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 2,577,500, 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, 2003, 599,500 shares of common stock remained
available for grant of awards to eligible participants under the 1997 Plan.
12
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee is charged with the responsibility of
administering all aspects of the Company's executive compensation programs. The
committee, which currently is comprised of two independent, non-employee
directors, also grants all stock options and otherwise administers the 1997
Plan. 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 2003 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 2003 will be
fully deductible. With respect to compensation to be paid to executives in 2004
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
13
REPORT OF AUDIT COMMITTEE
The audit committee of the Board of Directors, which consists of three
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 2003, the audit committee:
- Reviewed and discussed the audited financial statements for the year ended
December 31, 2003 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, 2003 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 our annual financial statements and review of our
financial statements included in our Forms 10-Q or services that are normally
provided in connection with statutory and regulatory filings, were $120,500 for
fiscal year 2003 and $109,000 for fiscal year 2002.
AUDIT-RELATED FEES - The aggregate fees billed by BDO for professional
services rendered for assurance and related services reasonably related to the
performance of the audit or review of our financial statements (other than those
reported above) for fiscal years 2003 and 2002 were $16,604 and $5,112,
respectively.
TAX FEES - The aggregate fees billed by BDO for professional services
rendered for tax compliance, tax advice and tax planning were $36,918 for fiscal
year 2003. The aggregate fees billed by Grant Thornton for professional services
rendered for tax compliance, tax advice and tax planning were $29,880 for fiscal
year 2002.
ALL OTHER FEES - There were no fees billed by BDO or Grant Thornton for
services rendered to the Company other than the services described above under
"Audit Fees," "Audit-Related Fees" and "Tax Fees"
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
14
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative
total stockholder return of the common stock of the Company during the period
from December 31, 1998 to December 31, 2003, compared with the cumulative
returns of the American Stock Exchange Market Value (U.S. & Foreign) Index and
The Dow Jones US Textiles & Apparel Index. The comparison assumes $100 was
invested on December 31, 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
----------------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31, December 31,
1998 1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------
Tag-It Pacific, Inc. 100.00 128.57 92.87 90.29 82.97 102.63
AMEX Market Value
(U.S. & Foreign) 100.00 169.96 141.55 122.47 103.02 144.90
Dow Jones US Textiles
& Apparel 100.00 97.34 118.29 119.30 111.18 149.61
15
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Except as disclosed in this Proxy Statement, neither the nominees for
election as directors of the Company, the directors or senior officers of the
Company, nor any stockholder owning more than five percent of the issued shares
of the Company, nor any of their respective associates or affiliates, had any
material interest, direct or indirect, in any material transaction to which the
Company was a party during fiscal 2003, or which is presently proposed.
TRANSACTIONS INVOLVING OUR OFFICERS, DIRECTORS, OR THEIR IMMEDIATE FAMILY AND
AFFILIATES.
Pursuant to a consulting agreement, we paid $137,000 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, 2003. We also paid $41,300
in consulting fees to Kevin Bermeister, a director, for the year ended December
31, 2003. In addition, we paid $20,000 in transportation fees to a company owned
in part by Mark Dyne, our Chairman during the year ended December 31, 2003.
As of December 31, 2003, 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, 2003, we were indebted to Mr. Dyne in the aggregate amount of
$579,795.
As of December 31, 2003, Colin Dyne was indebted to Tag-It, Inc. as
part of a series of loans in the aggregate amount of $687,076, including accrued
interest. 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 8.5% and is due on demand. The aggregate net amount due from Mr. at
December 31, 2003 amounted to $441,026.
We previously reported that Jonathan Burstein, Director and Vice
President of Operations, was indebted to Tag-It, Inc. in the aggregate amount of
$99,597. This indebtedness was adjusted for at the approval of the Board of
Directors during the year ended December 31, 2003, resulting in no further
obligations due from Mr. Burstein.
On October 4, 2002, we entered into a note payable agreement with
Harris Toibb, the beneficial owner of approximately 7.0% of our common stock at
March 19, 2004, in the amount of $500,000 to fund additional working 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.
16
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 affiliated with our
largest customer, Tarrant Apparel Group and its affiliate, 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,
Vice Chairman of the Board and a significant stockholder of Tarrant Apparel
Group.
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. KG Investment, LLC transferred its shares to Gerard
Guez and Todd Kay and, as of March 19, 2004, they each own 5.6% of our common
stock or 1,005,000 shares.
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. The shares of restricted stock were issued at the market price of our stock
at the time of issuance.
Total sales to Tarrant and Azteca and their affiliates for the year
ended December 31, 2003 amounted to approximately $25,883,000. As of December
31, 2003, accounts receivable related parties included approximately $11,721,000
due from Tarrant and Azteca and their affiliates. Terms are net 60 days.
Transportation fees paid to a company that has common ownership with Azteca for
the year ended December 31, 2003 amounted to $210,000.
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 held 66 2/3% of the shares of the
series C preferred stock, the Company agreed to use commercially reasonable
efforts to cause a representative designated by Coats to be nominated to serve
as a director of our company. 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 year ended December
31, 2003 amounted to approximately $7,764,000. On February 25, 2004, the holders
of the series C preferred stock converted all 759,494 shares of Series C
Preferred Stock, plus $458,707 of accrued dividends, into 700,144 shares of our
common stock. The shares were subsequently sold to an unrelated party.
17
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 2,577,500 shares to
3,077,500 shares. The 1997 Plan is attached hereto as Appendix C. 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 March 19, 2004, 599,500 shares remained available for grants of
awards under the 1997 Plan. The Board of Directors believes that the ability to
grant stock-based awards is important to the future success of the Company. The
grant of stock options and other stock-based awards can motivate high levels of
performance and provide an effective means of recognizing employee contributions
to the success of the Company. In addition, stock-based compensation can be
valuable in recruiting and retaining highly qualified technical and other key
personnel who are in great demand as well as rewarding and providing incentives
to our current employees. The increase in the number of shares available for
awards under the 1997 Plan will enable the Company to continue to realize the
benefits of granting stock-based compensation.
At March 30, 2004, the last reported sales price of the common stock on
the American Stock Exchange was $6.00 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 March 19, 2004, approximately 193 officers, directors and
employees of the Company were eligible to receive awards under the 1997 Plan.
18
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.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS.
As of March 30, 2004, 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).
19
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is
recognized for federal income tax purposes by an optionee at the time an
Incentive Stock Option is granted, and, except as discussed below, no income is
recognized by an optionee upon his or her exercise of an Incentive Stock Option.
If the optionee makes no disposition of the common stock received upon exercise
within two years from the date such option was granted or one year from the date
such option is exercised (the "ISO Holding Period Requirements"), the optionee
will recognize long-term capital gain or loss when he or she disposes of his or
her common stock. Such gain or loss generally will be measured by the difference
between the exercise price of the option and the amount received for the common
stock at the time of disposition.
If the optionee disposes of the common stock acquired upon exercise of
an Incentive Stock Option without satisfying the ISO Holding Period
Requirements, any amount realized from such "disqualifying disposition" will be
taxed at ordinary income tax rates in the year of disposition to the extent that
(i) the lesser of (a) the fair market value of the shares of common stock on the
date the Incentive Stock Option was exercised or (b) the fair market value of
such shares at the time of such disposition exceeds (ii) the Incentive Stock
Option exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares of common stock on the date of exercise will be
treated as long-term or short-term capital gain depending upon the length of
time the shares have been held.
The use of stock acquired through exercise of an Incentive Stock Option
to exercise an Incentive Stock Option will constitute a disqualifying
disposition if the ISO Holding Period Requirements have not been satisfied.
For alternative minimum tax purposes, the excess of the fair market
value of the shares of common stock as of the date of exercise over the exercise
price of the Incentive Stock Option is included in computing that year's
alternative minimum taxable income. However, if the shares of common stock are
disposed of in the same year, the maximum alternative minimum taxable income
with respect to those shares is the gain on disposition of the shares. There is
no alternative minimum taxable income from a disqualifying disposition in
subsequent years.
CONSEQUENCES TO EMPLOYEES: NON-STATUTORY STOCK OPTIONS. No income
generally is recognized by a holder of Non-statutory Stock Options at the time
Non-statutory Stock Options are granted under the 1997 Plan. In general, at the
time shares of common stock are issued to a holder pursuant to the exercise of
Non-statutory Stock Options, the holder will recognize ordinary income equal to
the excess of the fair market value of the shares on the date of exercise over
the exercise price.
A holder will recognize gain or loss on the subsequent sale of common
stock acquired upon exercise of Non-statutory Stock Options in an amount equal
to the difference between the sales price and the tax basis of the common stock,
which will include the exercise price paid plus the amount included in the
holder's income by reason of the exercise of the Non-statutory Stock Options.
Provided the shares of common stock are held as a capital asset, any gain or
loss resulting from a subsequent sale will be short-term or long-term capital
gain or loss depending upon the length of time the shares have been held.
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. The Company will
not be allowed a deduction for federal income tax purposes at the time of the
grant or exercise of an Incentive Stock Option. There are also no federal income
tax consequences to the Company as a result of the disposition of common stock
acquired upon 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.
20
EQUITY COMPENSATION PLAN INFORMATION.
The following table sets forth certain information as of December 31,
2003 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..... 1,978,000 $3.55 599,500
Equity compensation plans not
approved by security holders..... 1,277,885 $4.58 -
----------------------- --------------------
Total......................... 3,255,885 $3.95 599,500
======================= ====================
See Note 12 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, 2003 for information regarding the material features of the above plans.
Warrants issued pursuant to equity compensation plans not approved by security
holders are summarized as follows:
o 20,000 warrants issued for services in 2001, are exercisable
at $5.00 per share and expire in July 2004.
o 5,000 warrants issued for services in 2001, are exercisable at
$4.57 per share and expire in July 2004.
o 10,000 warrants issued for services in 2001, are exercisable
at $3.65 per share and expire in August 2004.
o 39,235 warrants issued for services in 1997, are exercisable
at $0.71 per share and expire in December 2007.
o 172,500 warrants issued for services in 2003, are exercisable
at $5.06 per share and expire in May 2008.
o 572,818 warrants issued for services in 2003, are exercisable
at $4.74 per share and expire in December 2008.
o 229,166 warrants issued in conjunction with private placement
transaction in 2001 and 2002, are exercisable at $4.34 per
share and expire at various date through February 2007.
o 229,166 warrants issued in conjunction with private placement
transaction in 2001 and 2002, are exercisable at $4.73 per
share and expire at various date through February 2007.
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 subdivisions or consolidation of shares or the payment
of a stock dividend on Common Stock.
21
REQUIRED VOTE.
The approval of the Plan Amendment requires the affirmative vote of a
majority of the votes 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.
22
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial
ownership of our common stock as of March 19, 2004:
o each person who is known to us to be the beneficial owner of
more than 5% 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 March 19, 2004. Unless
otherwise indicated, the persons named in this table have sole voting and sole
investment power with respect to all shares shown as beneficially owned, subject
to community property laws where applicable.
The address of each person listed is in our care, at 21900 Burbank
Boulevard, Suite 270, Woodland Hills, California 91367, unless otherwise set
forth below such person's name.
NUMBER OF
NAME OF BENEFICIAL OWNER SHARES OF CLASS PERCENT
-------------------------------------------- --------------- -------
DIRECTORS:
---------
Colin Dyne (1).............................. 1,792,580 9.7%
Mark Dyne (2)............................... 1,090,512 5.9%
Kevin Bermeister (3)........................ 222,117 1.2%
Jonathan Burstein (4)....................... 270,788 1.5%
Brent Cohen (5)............................. 70,000 *
Michael Katz (6)............................ 50,000 *
G. Maxwell Perks............................ - *
NON-DIRECTOR NAMED EXECUTIVE OFFICERS:
-------------------------------------
Jonathan Markiles (7) ...................... 133,248 *
Ronda Ferguson (8) ......................... 115,000 *
5% HOLDERS:
----------
Gerard Guez
3151 East Washington Blvd.
Los Angeles, CA 90023...................... 1,005,000 5.6%
Todd Kay
3151 East Washington Blvd.
Los Angeles, CA 90023...................... 1,005,000 5.6%
Harris Toibb
307 21st Street
Santa Monica, CA 90402 (9)................. 1,290,498 7.0%
23
The Pinnacle Fund, L.P.
4965 Preston Park Blvd., Suite 240
Plano, Texas 75093.......................... 1,251,200 6.9%
Southwell Partners, L.P.
1901 North Akard, 2nd Floor
Dallas, TX 75201............................ 1,000,000 5.5%
Pequot Inc.
500 Nyala Farm Road
Westport, CT 06880.......................... 909,900 5.0%
Directors and executive officers as a group
(9 persons) (10) ........................... 3,744,245 19.1%
* 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 350,000 shares of
common stock owned by Commerce Investment Group, LLC and 250,000 shares of
common stock held in trust, all of 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 175,000 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 115,000 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) Includes 1,358,000 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable, 350,000 shares
of common stock owned by Commerce Investment Group, LLC and 250,000 shares
of common stock held by a trust, all of 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.
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.
24
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,
2003, 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: G. Maxwell Perks filed a Form 3 on February 12,
2004, which should have been previously reported on or before October 27, 2003.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2005 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 December 15, 2004. In addition, in the event
a stockholder proposal is not received by the Company by February 28, 2005, the
Proxy to be solicited by the Board of Directors for the 2005 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 2005 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
2005 Annual Meeting is advanced or delayed more than 30 days from the date of
the 2004 Annual Meeting, stockholder proposals intended to be included in the
proxy materials for the 2005 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 2005 Annual Meeting. Upon determination by the Company that
the date of the 2005 Annual Meeting will be advanced or delayed by more than 30
days from the date of the 2004 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 2003 and have been selected by the Board of Directors to serve as
independent auditors for fiscal 2004. 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.
25
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2003, WILL BE
MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO RONDA
FERGUSON, 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 Ferguson
--------------------------
Ronda Ferguson
Chief Financial Officer
Tag-It Pacific, Inc.,
21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367
April 5, 2004
26
APPENDIX "A"
AMENDED & RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
TAG-IT PACIFIC, INC.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "Committee") of the Board of Directors (the
"Board") of Tag-It Pacific, Inc., a Delaware corporation (the "Company").
I. PURPOSE
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report of the audit committee required by the United States Securities and
Exchange Commission (the "SEC") for inclusion in the Company's annual proxy
statement; (c) retain and terminate the Company's independent accountant; (d)
approve audit and non-audit services to be performed by the independent
accountant; and (e) perform such other functions as the Board may from time to
time assign to the Committee. In performing its duties, the Committee shall seek
to maintain an effective working relationship with the Board, the independent
accountant, the internal auditors and management of the Company.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than
five, members (including a Chairperson), all of whom shall be "independent
directors," as such term is defined in the rules and regulations of the SEC and
the American Stock Exchange ("AMEX"). The members of the Committee and the
Chairperson shall be selected by the Board and serve at the pleasure of the
Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the SEC or any securities exchange or market on which shares of
the common stock of the Company are traded. The Chairperson shall maintain
regular communication with the chief executive officer, chief financial officer,
the lead partner of the independent accountant and the manager of the internal
audit.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices and be able to read and understand
financial statements. Committee members may enhance their familiarity with
finance and accounting by participating in educational programs conducted by the
Company or an outside consultant.
Except for Board and Committee fees, a member of the Committee shall
not be permitted to accept any fees paid directly or indirectly for services as
a consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and AMEX, including Rule 10A-3 promulgated under the
Securities Exchange Act of 1934. In addition, no member of the Committee may be
an "affiliated person" of the Company or any of its subsidiaries (as such term
is defined by the SEC). Members of the Committee may receive their Board and
Committee fees in cash, Company stock or options or other in-kind consideration
as determined by the Board or the Compensation Committee, as applicable, in
addition to all other benefits that other directors of the Company receive. No
director may serve on the Committee, without the approval of the Board, if such
director simultaneously serves on the audit committee of more than three public
companies.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least quarterly, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of any member of the Committee, preferably in conjunction with regular Board
meetings. The Committee may meet by telephone conference call or by any other
means permitted by law or the Company's Bylaws. A majority of the members of the
Committee shall constitute a quorum. The Committee shall
A-1
act on the affirmative vote of a majority of members present at a meeting at
which a quorum is present. Without a meeting, the Committee may act by unanimous
written consent of all members. The Committee shall determine its own rules and
procedures, including designation of a chairperson pro tempore, in the absence
of the Chairperson, and designation of a secretary. The secretary need not be a
member of the Committee and shall attend Committee meetings and prepare minutes.
The Committee shall keep written minutes of its meetings, which shall be
recorded or filed with the books and records of the Company. Any member of the
Board shall be provided with copies of such Committee minutes if requested.
The Committee may ask members of management, employees, outside
counsel, the independent accountant or others whose advice and counsel are
relevant to the issues then being considered by the Committee, to attend any
meetings and to provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
As part of its responsibility to foster free and open communication,
the Committee should meet periodically with management, the internal auditors
and the independent accountant in separate executive sessions to discuss any
matters that the Committee or any of these groups believe should be discussed
privately. In addition, the Committee or at least its Chairperson should meet
with the independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in Section IV. The Committee may also meet from time
to time with the Company's investment bankers, investor relations professionals
and financial analysts who follow the Company.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:
A. OVERSIGHT OF THE FINANCIAL REPORTING PROCESSES
1. In consultation with the independent accountant and
the internal auditors, review the integrity of the
organization's financial reporting processes, both
internal and external.
2. Review and approve all related-party transactions,
unless such responsibility has been reserved to the
full Board or delegated to another committee of the
Board.
3. Consider the independent accountant's judgments about
the quality and appropriateness of the Company's
accounting principles as applied in its financial
reporting. Consider alternative accounting principles
and estimates.
4. Annually review major issues regarding the Company's
auditing and accounting principles and practices and
its presentation of financial statements, including
the adequacy of internal controls and special audit
steps adopted in light of material internal control
deficiencies.
5. Discuss with management and legal counsel the status
of pending litigation, taxation matters, compliance
policies and other areas of oversight applicable to
the legal and compliance area as may be appropriate.
6. Meet at least annually with the chief financial
officer, the internal auditors and the independent
accountant in separate executive sessions.
7. Review all analyst reports and press articles about
the Company's accounting and disclosure practices and
principles.
8. Review all analyses prepared by management and the
independent accountant of significant financial
reporting issues and judgments made in connection
with the preparation of the Company's financial
statements, including any analysis of the effect of
alternative generally accepted accounting principles
("GAAP") methods on the
A-2
Company's financial statements and a description of
any transactions as to which management obtained
Statement on Auditing Standards No. 50 letters.
9. Review with management and the independent accountant
the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the
Company's financial statements.
B. REVIEW OF DOCUMENTS AND REPORTS
1. Review and discuss with management and the
independent accountant the Company's annual audited
financial statements and quarterly financial
statements (including disclosures under the section
entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operation") and
any reports or other financial information submitted
to any governmental body, or the public, including
any certification, report, opinion or review rendered
by the independent accountant, considering, as
appropriate, whether the information contained in
these documents is consistent with the information
contained in the financial statements and whether the
independent accountant and legal counsel are
satisfied with the disclosure and content of such
documents. These discussions shall include
consideration of the quality of the Company's
accounting principles as applied in its financial
reporting, including review of audit adjustments
(whether or not recorded) and any such other inquires
as may be appropriate. Based on the review, the
Committee shall make its recommendation to the Board
as to the inclusion of the Company's audited
consolidated financial statements in the Company's
annual report on Form 10-K.
2. Review and discuss with management and the
independent accountant earnings press releases, as
well as financial information and earnings guidance
provided to analysts and rating agencies. The
Committee need not discuss in advance each earnings
release but should generally discuss the types of
information to be disclosed and the type of
presentation to be made in any earnings release or
guidance.
3. Review the regular internal reports to management
prepared by the internal auditors and management's
response thereto.
4. Review reports from management, the internal auditors
and the independent accountant on the Company's
subsidiaries and affiliates, compliance with the
Company's code(s) of conduct, applicable law and
insider and related party transactions.
5. Review with management and the independent accountant
any correspondence with regulators or government
agencies and any employee complaints or published
reports that raise material issues regarding the
Company's financial statements or accounting
policies.
6. Prepare the report of the audit committee required by
the rules of the SEC to be included in the Company's
annual proxy statement.
7. Submit the minutes of all meetings of the Committee
to, or discuss the matters discussed at each
Committee meeting with, the Board.
8. Review any restatements of financial statements that
have occurred or were recommended. Review the
restatements made by other clients of the independent
accountant.
C. INDEPENDENT ACCOUNTANT MATTERS
1. The Committee shall be directly responsible for
interviewing and retaining the Company's independent
accountant, considering the accounting firm's
independence and effectiveness and approving the
engagement fees and other compensation to be paid to
the independent accountant.
2. On an annual basis, the Committee shall evaluate the
independent accountant's qualifications, performance
and independence. To assist in this undertaking, the
Committee shall require the independent accountant to
submit a report (which report shall
A-3
be reviewed by the Committee) describing (a) the
independent accountant's internal quality-control
procedures, (b) any material issues raised by the
most recent internal quality-control review, or peer
review, of the accounting firm or by any inquiry or
investigations by governmental or professional
authorities (within the preceding five years)
respecting one or more independent audits carried out
by the independent accountant, and any steps taken to
deal with any such issues and (c) all relationships
the independent accountant has with the Company and
relevant third parties to determine the independent
accountant's independence. In making its
determination, the Committee shall consider not only
auditing and other traditional accounting functions
performed by the independent accountant, but also
consulting, legal, information technology services
and other professional services rendered by the
independent accountant and its affiliates. The
Committee shall also consider whether the provision
of any of these non-audit services is compatible with
the independence standards under the guidelines of
the SEC and of the Independence Standards Board.
3. Approve in advance any non-audit services to be
provided by the independent accountant and adopt
policies and procedures for engaging the independent
accountant to perform non-audit services.
4. Review on an annual basis the experience and
qualifications of the senior members of the audit
team. Discuss the knowledge and experience of the
independent accountant and the senior members of the
audit team with respect to the Company's industry.
The Committee shall ensure the regular rotation of
the lead audit partner and audit review partner as
required by law and consider whether there should be
a periodic rotation of the Company's independent
accountant.
5. Review the performance of the independent accountant
and terminate the independent accountant when
circumstances warrant.
6. Establish and periodically review hiring policies for
employees or former employees of the independent
accountant.
7. Review with the independent accountant any problems
or difficulties the auditor may have encountered and
any "management" or "internal control" letter
provided by the independent accountant and the
Company's response to that letter. Such review should
include:
(a) any difficulties encountered in the course of the
audit work, including any restrictions on the scope
of activities or access to required information and
any disagreements with management;
(b) any accounting adjustments that were proposed by
the independent accountant that were not agreed to by
the Company;
(c) communications between the independent accountant
and its national office regarding any issues on which
it was consulted by the audit team and matters of
audit quality and consistency;
(d) any changes required in the planned scope of the
internal audit; and
(e) the responsibilities, budget and staffing of the
Company's internal audit function.
8. Communicate with the independent accountant regarding
(a) critical accounting policies and practices to be
used in preparing the audit report, (b) alternative
treatments of financial information within the
parameters of GAAP that were discussed with
management, including the ramifications of the use of
such alternative treatments and disclosures and the
treatment preferred by the independent accountant,
(c) other material written communications between the
independent accountant and management of the Company,
and (d) such other matters as the SEC and AMEX may
direct by rule or regulation.
A-4
9. Periodically consult with the independent accountant
out of the presence of management about internal
controls and the fullness and accuracy of the
organization's financial statements.
10. Oversee the independent accountant relationship by
discussing with the independent accountant the nature
and rigor of the audit process, receiving and
reviewing audit reports and ensuring that the
independent accountant has full access to the
Committee (and the Board) to report on any and all
appropriate matters.
11. Discuss with the independent accountant prior to the
audit the general planning and staffing of the audit.
12. Obtain a representation from the independent
accountant that Section 10A of the Securities
Exchange Act of 1934 has been followed.
D. INTERNAL AUDIT CONTROL MATTERS
1. Discuss with management policies with respect to risk
assessment and risk management. Although it is
management's duty to assess and manage the Company's
exposure to risk, the Committee should discuss
guidelines and policies to govern the process by
which risk assessment and management is handled and
review the steps management has taken to monitor and
control the Company's risk exposure.
2. Establish regular and separate systems of reporting
to the Committee by each of management, the
independent accountant and the internal auditors
regarding any significant judgments made in
management's preparation of the financial statements
and the view of each as to appropriateness of such
judgments.
3. Following completion of the annual audit, review
separately with each of management, the independent
accountant and the internal auditors any significant
difficulties encountered during the course of the
audit, including any restrictions on the scope of
work or access to required information.
4. Review with the independent accountant, the internal
auditors and management the extent to which changes
or improvements in financial or accounting practices
have been implemented. This review should be
conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided
by the Committee.
5. Advise the Board about the Company's policies and
procedures for compliance with applicable laws and
regulations and the Company's code(s) of conduct.
6. Establish procedures for receipt, retention and
treatment of complaints and concerns regarding
accounting, internal accounting controls or auditing
matters, including procedures for confidential,
anonymous submissions from employees regarding
questionable accounting or auditing matters.
7. Periodically discuss with the chief executive officer
and chief financial officer (a) significant
deficiencies in the design or operation of the
internal controls that could adversely affect the
Company's ability to record, process, summarize and
report financial data and (b) any fraud that involves
management or other employees who have a significant
role in the Company's internal controls.
8. Ensure that no officer, director or any person acting
under their direction fraudulently influences,
coerces, manipulates or misleads the independent
accountant for purposes of rendering the Company's
financial statements materially misleading.
E. EVALUATION OF INTERNAL AUDITORS
1. Review activities, organizational structure and
qualifications of the internal auditors.
2. Review and concur in the appointment, replacement,
reassignment or dismissal of the manager of internal
auditing.
3. Consider and review with management and the manager
of internal auditing:
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(a) significant findings during the year and
management's responses thereto;
(b) any difficulties encountered in the course of
internal audits, including any restrictions on the
scope of the internal auditors' work or access to
required information;
(c) any changes required in the planned scope of the
internal auditors' audit plan;
(d) the internal auditors' budget and staffing; and
(e) the internal auditors' compliance with The
Institute of Internal Auditors' Standards for the
Professional Practice of Internal Auditing.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it
is meeting its responsibilities under this Charter. In this review, the
Committee shall consider, among other things, (a) the appropriateness of the
scope and content of this Charter, (b) the appropriateness of matters presented
for information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding to retain
special legal, accounting or other consultants (without seeking Board approval)
to advise the Committee. The Committee may conduct or authorize investigations
into or studies of matters within the Committee's scope of responsibilities as
described herein, and may retain, at the expense of the Company, independent
counsel or other consultants necessary to assist the Committee in any such
investigations or studies. The Committee shall have sole authority to negotiate
and approve the fees and retention terms of such independent counsel or other
consultants.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments thereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any stockholder of the Company who requests it.
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APPENDIX "B"
CHARTER OF THE NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS OF
TAG-IT PACIFIC, INC.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Nominating Committee (the "Committee") of the Board of Directors
(the "Board") of Tag-It Pacific, Inc., a Delaware corporation (the "Company").
I. PURPOSE
The Committee is responsible for: (a) assisting the Board in
determining the desired experience, mix of skills and other qualities to assure
appropriate Board composition, taking into account the current Board members and
the specific needs of the Company and the Board; (b) identifying highly
qualified individuals meeting those criteria to serve on the Board; (c)
proposing to the Board a slate of nominees for election by the stockholders at
the Annual Meeting of Stockholders and prospective director candidates in the
event of the resignation, death, removal or retirement of directors or a change
in Board composition requirements; (d) reviewing candidates nominated by
stockholders for election to the Board; (e) reviewing management succession
plans; and (f) such other functions as the Board may from time to time assign to
the Committee. In performing its duties, the Committee shall seek to maintain an
effective working relationship with the Board and the Company's management.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than
five, members (including a Chairperson), all of whom shall be "independent
directors," as such term is defined in the rules and regulations of the American
Stock Exchange ("AMEX"). Notwithstanding the foregoing, the Committee may have
as one of its members a "non-independent director" for a period not to exceed
two years due to exceptional and limited circumstances pursuant to Section
804(b) of the AMEX Company Guide. The members of the Committee and the
Chairperson shall be selected by the Board and serve at the pleasure of the
Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the United States Securities and Exchange Commission or any
securities exchange or market on which shares of the common stock of the Company
are traded. The Committee shall have authority to delegate responsibilities
listed herein to subcommittees of the Committee if the Committee determines such
delegation would be in the best interest of the Company.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least once each year, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of its Chairperson, preferably in conjunction with regular Board meetings. The
Committee may meet by telephone conference call or by any other means permitted
by law or the Company's Bylaws. A majority of the members of the Committee shall
constitute a quorum. The Committee shall act on the affirmative vote of a
majority of members present at a meeting at which a quorum is present. Without a
meeting, the Committee may act by unanimous written consent of all members. The
Committee shall determine its own rules and procedures, including designation of
a chairperson pro tempore, in the absence of the Chairperson, and designation of
a secretary. The secretary need not be a member of the Committee and shall
attend Committee meetings and prepare minutes. The Committee shall keep written
minutes of its meetings, which shall be recorded or filed with the books and
records of the Company. Any member of the Board shall be provided with copies of
such Committee minutes if requested.
The Committee may ask members of management or others whose advice and
counsel are relevant to the issues then being considered by the Committee, to
attend any meetings and to provide such pertinent information as the Committee
may request.
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
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IV. COMMITTEE RESPONSIBILITIES
In carrying out its oversight responsibilities, the Committee's
policies and procedures should remain flexible to enable the Committee to react
to changes in circumstances and conditions so as to ensure the Company remains
in compliance with applicable legal and regulatory requirements. In addition to
such other duties as the Board may from time to time assign, the Committee shall
have the following responsibilities:
A. BOARD CANDIDATES AND NOMINEES
1. To propose to the Board a slate of nominees for
election by the stockholders at the Annual Meeting of
Stockholders and prospective director candidates in
the event of the resignation, death, removal or
retirement of directors or a change in Board
composition requirements;
2. To develop criteria for the selection of new
directors and nominees for vacancies on the Board,
including procedures for reviewing potential nominees
proposed by stockholders;
3. To review with the Board the desired experience, mix
of skills and other qualities to assure appropriate
Board composition, taking into account the current
Board members and the specific needs of the Company
and the Board;
4. To conduct candidate searches, interview prospective
candidates and conduct programs to introduce
candidates to the Company, its management and
operations, and confirm the appropriate level of
interest of such candidates;
5. To recommend to the Board, with the input of the
Chief Executive Officer, qualified candidates for the
Board who bring the background, knowledge,
experience, skill sets and expertise that would
strengthen and increase the diversity of the Board;
6. To conduct appropriate inquiries into the background
and qualifications of potential nominees;
7. To review the suitability for continued service as a
director of each Board member when he or she has a
significant change in status, such as an employment
change, and recommending whether or not such director
should be re-nominated; and
8. To work with senior management to provide an
orientation and continuing education program for
directors.
Notwithstanding the provisions set forth in this Section IV, if the Company is
legally required by contract or otherwise to provide third parties with the
ability to nominate directors (e.g., preferred stock rights to elect directors
upon a dividend default, stockholder agreements and management agreements), the
selection and nomination of such directors need not be subject to the
Committee's nominating and review process.
B. EVALUATIONS AND MANAGEMENT DEVELOPMENT
1. To develop and review periodically a process for and
to assist the Board with conducting, not less
frequently than annually, an evaluation of the
effectiveness of the Board as a whole;
2. To develop and review periodically a process for and
to assist the Board with conducting, not less
frequently than annually, an evaluation of the
Company's management;
3. To review the Company's management succession plans
to help assure proper management planning; and
4. To review the Chief Executive Officer's
recommendations, and to make recommendations to the
Board, as requested, for senior officer positions.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it
is meeting its responsibilities under this Charter. In this review, the
Committee shall consider, among other things, (a) the appropriateness of the
scope and content of this Charter, (b) the appropriateness of matters presented
for information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
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written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee may conduct or authorize investigations into or studies
of matters within the Committee's scope of responsibilities as described herein,
and may retain, at the expense of the Company, independent counsel or other
consultants necessary to assist the Committee in any such investigations or
studies, if authorized by the Board. The Committee shall have sole authority to
retain and terminate any search firm to be used to identify director candidates,
including the sole authority to negotiate and approve the fees and retention
terms of such search firm.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments thereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any stockholder of the Company who requests it.
B-3
APPENDIX "C"
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 exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Awards without constituting termination of their employment for purposes of
their Awards; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; (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 officers and
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 officers and
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, 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
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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.
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
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not exceed an aggregate of 2,577,500 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.
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(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.
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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 Ferguson, 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
May 12, 2004, 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 I directors:
Kevin Bermeister Brent Cohen
|_| 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:)
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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 5, 2004 and the accompanying Proxy Statement relating to the
Annual Meeting.
Dated:_____________________, 2004
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