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. _____)
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Filed
by the Registrant
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x
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Filed
by a Party other than the Registrant
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o
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Check
the
appropriate box:
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x
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Preliminary
Proxy Statement
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o
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Confidential,
For Use of the Commission Only
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¨
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Definitive
Proxy Statement
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(as
permitted by Rule 14a-6(e)(2))
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Definitive
Additional Materials
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Soliciting
Material Pursuant to Rule 14a-11(c) or Rule
14a-12
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TAG-IT
PACIFIC, INC.
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(Name
of Registrant)
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(Name
of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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No
Fee Required
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transactions applies:
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(3)
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Per
unit price or other underlying value of transaction computed
pursuant to
Exchange Act Rule 0-11:
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(4)
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Proposed
maximum aggregate value of transaction:
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o
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Check
box if any part of the fee is offset as provided by Exchange
Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee
was paid
previously. Identify the previous filing by registration statement
number,
or the form or schedule and the date of its filing.
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(1)
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Amount
previously paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
party:
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(4)
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Date
Filed:
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TAG-IT
PACIFIC, INC.
_____________________________________________________
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
_____________________________________________________
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TIME
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9:00
a.m. Pacific Daylight Savings Time on
July 31, 2006
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PLACE
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Hilton
Hotel
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6360
Canoga Avenue
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Woodland
Hills, California 91367.
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ITEMS
OF BUSINESS
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(1)
To
elect three Class III members of the Board of Directors for three-year
terms. The persons nominated by our Board of Directors (Messrs.
Mark Dyne,
Colin Dyne and Raymond Musci) are described in the accompanying
Proxy
Statement;
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(2)
To
approve an amendment to the Company’s Certificate of Incorporation to
increase the number of authorized shares of common stock from 30,000,000
to 100,000,000;
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(3)
To
approve an amendment to the Company’s 1997 Stock Plan (the “Plan”) to
increase the maximum number of shares of common stock that may
be issued
pursuant to awards granted under the Plan from 3,077,500 to 6,000,000
shares;
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(4)
To
approve an amendment to the Plan to increase the number of shares
of
common stock that may be issued pursuant to awards granted to any
individual under the Plan in a single year to 50% of the total
number of
shares available under the Plan; and
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(5)
To
transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement.
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RECORD
DATE
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You
can vote if you were a stockholder of the Company at the close
of business
on June 15, 2006.
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PROXY
VOTING
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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.
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Woodland
Hills, California
June
[__], 2006
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Lonnie
D. Schnell
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Chief
Financial Officer
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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
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PROXY
STATEMENT
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These
Proxy materials are delivered in connection with the solicitation by the
Board
of Directors of Tag-It Pacific, Inc., a Delaware corporation (“Tag-It,” the
“Company”, “we”, or “us”), of Proxies to be voted at our 2006 Annual Meeting of
stockholders and at any adjournments or postponements.
You
are
invited to attend our Annual Meeting of stockholders on July 31, 2006, beginning
at 9:00 a.m. Pacific Daylight Savings Time. The meeting will be held at the
Hilton Hotel, 6360 Canoga Avenue, Woodland Hills, California 91367.
Stockholders
Entitled to Vote.
Holders
of Tag-It common stock at the close of business on June 15, 2006 are entitled
to
receive this notice and to vote their shares at the Annual Meeting. As of
June
15, 2006, there were 18,376,180
shares
of
common stock outstanding.
Mailing
of Proxy Statements.
We
anticipate mailing this Proxy Statement and the accompanying Proxy to
stockholders on or about June 30, 2006.
Proxies.
Your
vote
is important. If your shares are registered in your name, you are a stockholder
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
shareowners 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, including the proposed amendments to our 1997 Stock
Plan,
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
three
nominees for Class III director receiving the highest number of votes at
the Annual Meeting will be elected. If any nominee is unable or unwilling
to
serve as a director at the time of the Annual Meeting, the Proxies will be
voted
for such other nominee(s) as shall be designated by the current Board of
Directors to fill any vacancy. The Company has no reason to believe that
any
nominee will be unable or unwilling to serve if elected as a
director.
Amendment
of the Company’s Certificate of Incorporation.
The
approval of the amendment to the Company's Certificate of Incorporation will
require the affirmative vote of a majority of the outstanding shares of common
stock as of the record date.
Amendments
of the 1997 Stock Plan.
The
approval of each of the amendments of the 1997 Stock Plan will require the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Annual Meeting. Broker non-votes
will
not be counted as votes cast for or against the proposed amendments of the
1997
Stock Plan.
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
Proxy
holders 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 Proxy holders 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 three members of the Board of Directors. In accordance with
our
Certificate of Incorporation, the Board of Directors is grouped into three
classes. At each Annual Meeting, directors constituting one class are elected,
each for a three-year term. Our bylaws presently provide that the number
of
directors shall not be less than two nor more than nine, with the exact number
to be fixed from time to time by resolution of our Board of Directors. The
number of directors is currently fixed at nine.
The
Class
III directors whose terms expire at the 2006 Annual Meeting are Mark Dyne,
Colin
Dyne and Raymond Musci. The Class I directors are serving terms that expire
in
2007, and the Class II directors are serving terms that expire in 2008. Three
Class III directors will be elected at the Annual Meeting.
Unless
otherwise instructed, the Proxy holders will vote the Proxies received by
them
for the nominees named below. If any nominee is unable or unwilling to serve
as
a director at the time of the Annual Meeting, the Proxies will be voted for
such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. The Company has no reason to believe that any nominee
will
be unable or unwilling to serve if elected as a director.
The
Board
of Directors proposes the election of the following nominees as Class III
directors:
Mark
Dyne
Colin
Dyne
Raymond
Musci
If
elected, Mark Dyne, Colin Dyne and Raymond Musci are expected to serve until
the
2009 Annual Meeting of stockholders. The three nominees for election as Class
III directors at the Annual Meeting who receive the highest number of
affirmative votes will be elected.
The
principal occupation and certain other information about the nominees, other
directors whose terms of office continue after the Annual Meeting, and certain
executive officers are set forth on the following pages.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE ELECTION OF THE
NOMINEES LISTED ABOVE.
3
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth information with respect to nominees, continuing
directors and officers of the Company as of June 15, 2006:
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Name
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Age
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Position
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Mark
Dyne (1)
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45
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Chairman
of the Board of Directors
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Stephen
P. Forte
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38
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Chief
Executive Officer and Director
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Colin
Dyne (1)
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43
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Vice
Chairman of the Board of Directors
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Jonathan
Burstein (2)
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40
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Executive
Vice President of Operations, Secretary and Director
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Kevin
Bermeister
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45
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Director
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Susan
White
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56
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Director
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Raymond
Musci
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45
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Director
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Joseph
Miller
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42
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Director
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Brent
Cohen
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47
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Director
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Lonnie
D. Schnell
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57
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Chief
Financial Officer
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Wouter
van Biene
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56
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Chief
Operating Officer
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(1)
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Colin
Dyne and Mark Dyne are brothers.
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(2)
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Jonathan
Burstein is Colin Dyne’s and Mark Dyne’s
brother-in-law.
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Class
III Directors: Terms Expiring In 2006
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Mark
Dyne
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Mr.
Dyne has served as Chairman of the Board of Directors since 1997.
Mr. Dyne
currently serves as the Chief Executive Officer and the Managing
Partner
of Europlay Capital Advisors, LLC, a merchant banking and advisory
firm.
Mr. Dyne previously served as Chairman and Chief Executive Officer
of Sega
Gaming Technology Inc. (USA), a gaming company, and 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, and he was a founder and former
director
of Sega Ozisoft Pty Ltd., a leading distributor of entertainment
software
in both Australia and New Zealand.
Member:
Governance
Committee
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Colin
Dyne
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Currently,
Mr. Dyne serves as Vice Chairman of the Board of Directors and
has served
as a Director since 1997. Mr. Dyne founded Tag-It, Inc., one of
our
subsidiaries, in 1991 with his father, Harold Dyne. Mr. Dyne served
as our
President from inception and as our Chief Executive Officer from
1997 to
2005. 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.
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Raymond
Musci
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Mr.
Musci has served as a Director of the Company since June 2005.
From
October 1999, Mr. Musci has served as the President and Chief Executive
Officer and a director of BAM! Entertainment, Inc., a publicly
traded
company that develops, publishes and distributes entertainment
software
products and video games. Mr. Musci currently serves as a director
of
Brilliant Digital Entertainment, Inc., a publicly traded corporation
(OTCBB: BDEI). From May 1990 to July 1999, Mr. Musci served as
the
President, Chief Executive Officer and as a director of Infogrames
Entertainment, Inc. (formerly Ocean of America, Inc.), a company
that
develops, publishes and distributes software products. Mr. Musci
also
previously served as a director of Ocean International, Ltd., the
holding
company of Ocean of America, Inc. and Ocean Software, Ltd., and
as
Executive Vice President/General Manager of Data East USA, Inc.,
a
subsidiary of Data East Corp., a Japanese company.
Member:
Audit
Committee
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Class
I Directors: Terms Expiring In 2007
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Joseph
Miller
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Mr.
Miller has served on the Board of Directors since June 2005. Since
2003,
he has been a Managing Director of Europlay Capital Advisors, LLC,
a
merchant banking and advisory firm. From 1998 to 2003, Mr. Miller
was a
Senior Vice President at Houlihan Lokey Howard & Zukin, a leading
middle-market investment bank.. From 1994 to 1998, Mr. Miller served
as
the Vice President, Corporate Development for Alliance Communications
Corporation, Canada’s leading independent producer and distributor of
filmed entertainment. Mr. Miller has bachelor’s degree in Economics and
Business from the University of California, Los Angeles
Member:
Audit
Committee
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5
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Brent
Cohen
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Mr.
Cohen has served on the Board of Directors since 1998. Mr. Cohen
has
served as Chief Executive Officer and a director of Dovebid Inc.
since
August 2005. Mr. Cohen served as President 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) in 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, Nominating and Governance
Committees
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Kevin
Bermeister
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Mr.
Bermeister has served on our Board of Directors since 1999. He
has been a
director of Brilliant Digital Entertainment, Inc. (OTCBB: BDEI)
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 and Nominating Committees
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Class
II Directors: Terms Expiring In 2008
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Stephen
P. Forte
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Mr.
Forte has served as our Chief Executive Officer since October 2005.
Mr.
Forte was appointed to the Board of Directors in March 28, 2006.
Prior to
joining us Mr. Forte served as a principal at the Forte Group,
LLC, a
business development consulting company founded by Mr. Forte in
February
of 2005, which focuses on assisting U.S. companies expand business
overseas and foreign corporations expand their business in the
U.S. Prior
to founding the Forte Group, Mr. Forte served as President of Ascendent
Telecommunications, Inc., a premier voice mobility company, which
he
founded in 1999. Before launching Ascendent, Mr. Forte founded
Travelers
Telecom (aka Wilshire Cellular) in 1993, a leading cellular rental
provider and wireless carrier for short term users and government.
Mr.
Forte earned a bachelor’s degree from the University of Southern
California and an MBA from George Washington University. He currently
serves on the Board for the School of Business at The George Washington
University, and serves as a mentor at the Marshall School of Business,
at
the University of Southern California.
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Susan
White
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Ms.
White has served on the Board of Directors since June 2005. Ms.
White has
served as Chief Executive Officer and President of Brand Identity
Solutions, LLC, a branding, marketing and licensing consulting
company,
since 1984. Ms. White has also served as Chief Executive Officer
and
President of Whitespeed, LLC, an Internet design, branding and
marketing
company, since 2000. Ms. White also previously served as Director
of
Marketing and Advertising Worldwide for Warnaco from November 1997
through
August 1999. Ms. White received a BA from Bay State College.
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6
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Jonathan
Burstein
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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. Mr. Burstein has
served as
our Secretary since November 2004.
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Other
Executive Officers
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Lonnie
D. Schnell
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Mr.
Schnell joined the Company in January 2006 as our Chief Financial
Officer.
Mr. Schnell served as Vice President of Finance for Capstone Turbine
Corporation, a manufacturer of micro-turbine electric generators
from 2004
until 2005. From 2002 to 2004 Mr. Schnell served as Chief Financial
Officer of EMSource, LLC, an electronic manufacturing service company.
Prior to EMSource, in 2002, Mr. Schnell served as Chief Financial
Officer
of Vintage Capital Group, a private equity investment firm. From
1999
through 2002, Mr. Schnell served as Chief Financial Officer of
Need2Buy,
Inc. a business-to-business internet marketplace for electronic
components. Mr. Schnell has completed an executive MBA program
with the
Stanford University Executive Institute, and earned his Bachelor
of
Science in Accounting at Christian Brothers University. Mr. Schnell
is a
Certified Public Accountant with experience in the international
accounting firm of Ernst & Young LLP.
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Wouter
van Biene
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Mr.
van Biene joined the Company in March 2006 as our Chief Operating
Officer.
Prior to joining us, Mr. van Biene served as Senior Vice President
-
Operations for Ascendent Telecommunications Inc., a provider of
mobile
telecommunications solutions, from 2002 through February 2006.
Prior to
joining Ascendent, Mr. van Biene served from 2001 to 2002 as CFO
of
AbraComm Inc., a private, high tech start up company in the
telecommunications arena, and from 2000 to 2001 as Vice President
of
Operations of CentreCom, another high tech telecommunications firm.
Earlier in his career, Mr. van Biene served as CIO of UStel, Inc,
a
regional Long Distance Carrier and as Founder/CFO of Consortium
2000, Inc.
a telecommunications marketing organization. Prior to that, Mr.
van Biene
held several executive positions over a fourteen-year time span
at
American Medical International, Inc. Mr. van Biene holds a Masters
degree
in Economics and Business Administration from the University of
Amsterdam
in the Netherlands.
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Board
Meetings and Committees.
The
Board
of Directors held 12 general meetings during fiscal 2005. The
Board
of Directors also acted 2 times by unanimous written consent during fiscal
2005.
Each current 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 2005,
with
the exception of Kevin Bermeister who attended 42% 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.
7
Audit
Committee. We
currently have a separately designated standing Audit Committee established
in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
The
roles 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 the independent registered public accounting firm,
reviews the scope of the audit to be conducted by the independent registered
public accounting firm and meets quarterly with the independent registered
public accounting firm 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 currently consists of Messrs. Musci and Miller. Messrs. Musci and
Miller both meet the AMEX financial knowledge requirements, and the Board
of
Directors has further determined that Mr. Musci (i) is an “audit committee
financial expert” as such term is defined in Item 401(h) of Regulation S-K
promulgated by the SEC and (ii) meets the AMEX professional experience
requirements. We are currently not in compliance with the AMEX listing
requirement that we maintain an audit committee of at least three independent
board members. The audit committee held 9 meetings during fiscal 2005. The
audit
committee acted 1time by unanimous written consent during fiscal
2005.
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 meet during 2005, as its functions were
performed by the full Board of Directors.
Nominating
Committee. The
nominating committee currently consists of Messrs. Bermeister and Cohen .
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 held 1 meeting during fiscal 2005. 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.
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.
The Governance Committee did not meet during 2005, as its functions were
performed by the full Board of Directors.
8
Director
Compensation.
We
currently pay nonemployee directors $1,500 for their personal attendance
at any
meeting of the Board of Directors and $500 for attendance at any telephonic
meeting of the Board of Directors or at any meeting of a committee of the
Board
of Directors. We also pay non-employee directors an annual fee of $25,000
and a
committee fee of $10,000. Non-employee directors, Mr. Mark Dyne and Messrs.
Bermeister, Cohen and Katz, each received an option to purchase 25,000 shares
of
our common stock in March 2005. Mr. Katz resigned from the Board of Directors
on
March 27, 2006. Ms. White and Messrs. Miller and Musci, each received an
option
to purchase 30,000 shares of our common stock in December 2005. We also
reimburse directors for their reasonable travel expenses incurred in attending
board or committee meetings and pay nonemployee directors a per diem for
board
services. During 2005, we paid $24,000 and $21,000, to Messers. Cohen and
Musci,
respectively, in additional per diem fees for board related services provided
by
these directors.
Colin
Dyne resigned as Chief Executive Officer as of October 21, 2005. Mr Dyne
continues to serve as Vice Chairman of the Board of Directors and as a
consultant pursuant to an oral agreement for an indefinite term. For his
consulting services, Mr. Dyne is paid a monthly fee of $18,000. In addition,
Mr.
Dyne is reimbursed for reasonable travel expenses, receives a car allowance
of
$2000 per month and receives certain medical benefits.
Compensation
Committee Interlocks and Insider Participation.
As
of
December 31, 2005, we were indebted to Monto Holdings Pty. Ltd. in the aggregate
amount of $60,919, plus accrued interest of $99,398. Kevin Bermeister, a
member
of the compensation committee of our Board of Directors, 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.
No
current executive officer of the Company has served as a member of the board
of
directors or compensation committee of any entity for which a member of our
Board of Directors or Compensation Committee has served as an executive officer.
Code
of Ethics.
We
have
adopted a Code of Ethical Conduct that applies to 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 to our Annual Report on Form 10-K.
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, identifies a mailing address of the Audit Committee
of our
Board of Directors. This allows individuals to contact Board members in
connection with matters concerning the code and our company’s overall ethical
values and standards.
9
3. Investor
Relations.
Our
investor relations manager, Rayna Long, addresses all of our investor relations
matters. Stockholders are free to contact Ms. Long at info@tagitpacific.com,
or our
Investor Relations Department, at 818-444-4100. Ms. Long 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 2005 Annual Meeting of
Stockholders.
EXECUTIVE
COMPENSATION
The
following table sets forth, as to the Chief Executive Officer, and as to
each of
the other most highly compensated officers whose compensation exceeded $100,000
during the last fiscal year (the “Named Executive Officers”), information
concerning all compensation paid for services to the Company in all capacities
for each of the three years ended December 31 indicated below.
SUMMARY
COMPENSATION TABLE
|
Annual
Compensation
|
Long
Term Compensation
|
||||||||
|
Name
and Principal Position
|
Fiscal
Year Ended December 31,
|
Salary
($)
|
Other
($)
|
Number
of Securities Underlying Options
|
|||||
|
Stephen
P. Forte (2)
|
2005
|
38,250
|
(1)
|
--
|
|||||
|
Chief
Executive Officer
|
|||||||||
|
August
DeLuca (3)
|
2005
|
166,385
|
(1)
|
35,000
|
|||||
|
Former
Chief Financial Officer
|
|||||||||
|
Colin
Dyne (4)
|
2005
|
556,309
|
73,097(5)
|
--
|
|||||
|
Vice
Chairman of Board of Directors
|
2004
|
450,594
|
(1)
|
--
|
|||||
|
(former
Chief Executive Officer)
|
2003
|
452,397
|
(1)
|
100,000
|
|||||
|
____________________________________
|
|||||||||
|
Jonathan
Burstein
|
2005
|
239,950
|
(1)
|
--
|
|||||
|
Executive
Vice President of Operations
|
2004
|
244,950
|
(1)
|
--
|
|||||
|
and
Director
|
2003
|
246,079
|
(1)
|
35,000
|
|||||
|
(1)
|
Certain
of the named executive officers receive personal benefits in addition
to
salary and cash bonuses, including car allowances and expenses.
The
aggregate amount of such personal benefits does not exceed the
lesser of
$50,000 or 10% of the total annual salary and bonus reported for
the
officer.
|
|
(2)
|
Mr.
Forte was appointed Chief Executive Officer on October 21, 2005.
Prior to
joining us as CEO, Mr. Forte was paid certain fees as a consultant
(See
below “Certain Transactions with Directors and Executive
Officers”).
|
|
(3)
|
Mr.
DeLuca was appointed Chief Financial Officer on April 1, 2005 and
resigned
on January 20, 2006.
|
|
(4)
|
Mr.
Dyne served as Chief Executive Officer from 1997 to October 21,
2005.
|
|
(5)
|
Comprised
of car allowances of $24,000; life insurance premiums of $35,000;
and
other personal expenses.
|
10
Option
Grants In Fiscal 2005.
The
following table sets forth certain information regarding the grant of stock
options made during fiscal 2005 to the Named Executive Officers.
|
Name
|
Number
of Securities Underlying Options Granted
|
Percent
of Total Options Granted To Employees In Fiscal Year(1)
|
Exercise
Or Base Price(2)
|
Expiration
Date
|
Potential
Realizable Value At Assumed Rate of Stock Price Appreciation for
Option
Term(3)
|
||||||||||||||
|
5%
|
10%
|
||||||||||||||||||
|
August
DeLuca
|
35,000
(4
|
)
|
15%
|
|
$
|
5.00
|
2/14/2015
|
$
|
11,057
|
$
|
278,905
|
||||||||
|
(1)
|
Options
covering an aggregate of 235,000 shares were granted to employees
during
fiscal 2005.
|
|
(2)
|
The
exercise price and tax withholding obligations related to exercise
may be
paid by delivery of already owned shares, subject to certain
conditions.
|
|
(3)
|
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)
|
Mr.
DeLuca resigned from the Company effective January 20, 2006. All
unexercised options held by Mr. DeLuca terminated 30 days following
the
date of his resignation.
|
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 ($0.36 per share) on December 30, 2005, the last
trading
day in 2005.
|
Shares
Acquired
On
|
Value
|
Number
of Securities Underlying
Unexercised
Options
at December
31, 2005
|
Value
of Unexercised
In-the-Money
Options at
December
31, 2005
|
||||||||||||||||
|
Name
|
Exercise
|
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
|||||||||||||
|
Stephen
P. Forte
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
August
DeLuca (1)
|
--
|
--
|
8,750
|
26,250
|
--
|
--
|
|||||||||||||
|
Colin
Dyne
|
--
|
--
|
535,000
|
--
|
--
|
----
|
|||||||||||||
|
Jonathan
Burstein
|
--
|
--
|
175,000
|
--
|
--
|
--
|
|||||||||||||
|
(1)
|
Mr.
DeLuca resigned from the Company effective January 20, 2006. All
unexercised options held by Mr. DeLuca terminated 30 days following
the
date of his resignation.
|
Employment
Contracts.
During
fiscal year 2005, we did not have employment agreements with any of the Named
Executive Officers. In 2006, we entered into the following employment agreements
with our executive officers.
On
March
16, 2006, we entered into an Executive Employment Agreement with Stephen
Forte,
pursuant to which Mr. Forte serves as our Chief Executive Officer. This
employment agreement has a term continuing though December 31, 2008, which
may
be extended to December 31, 2009. Pursuant to this agreement, Mr. Forte will
receive an annual base salary of $275,000 for 2006 and $325,000 for each
subsequent year of the term and will be entitled to receive an annual incentive
bonus based upon our earnings before interest and taxes. In the event that
prior
to the end of the term, Mr. Forte’s employment is terminated by us “without
cause” (as defined in the agreement), by Mr. Forte for “good reason” (as defined
in the agreement) or due to Mr. Forte’s death or disability, then Mr. Forte or
his estate will be entitled to receive, in addition to all accrued salary,
(i)
severance payments equal to Mr. Forte’s base salary for the remaining term of
the agreement or, in the case of death or disability, through December 31,
2008,
(ii) a pro rated portion of the annual incentive bonus for the year in which
the
termination occurred, (iii) full acceleration of vesting of the options issued
to Mr. Forte pursuant to the agreement and (iv) continued healthcare coverage
for Mr. Forte and his dependents for the remaining term of the agreement.
In
connection with the employment agreement and as an inducement to employment,
we
previously granted Mr. Forte an option to purchase 900,000 shares of our
common
stock, which vests over a period of three years. In addition, in lieu of
$50,000
in cash compensation, we granted Mr. Forte 135,135 shares of common stock
and an
option to purchase 135,135 shares of common stock that vests in full on October
24, 2006. All of these options will vest in full upon a change of control
of our
company or upon termination of Mr. Forte’s employment without cause, for good
reason or due to his death or disability.
11
On
March
16, 2006, we entered into an employment offer letter with Wouter van Biene,
pursuant to which Mr. van Biene serves as our Chief Operating Officer on
an
“at-will” basis. Pursuant to this offer letter, Mr. van Biene will receive an
annual base salary of $225,000 and will be eligible to receive an annual
incentive bonus based upon our earnings before interest and taxes. In the
event
that Mr. van Biene’s employment is terminated by us without “cause” (as defined
in the agreement) or due to Mr. van Biene’s death or disability, then Mr. van
Biene or his estate will be entitled to receive as severance, in addition
to all
accrued salary, (i) salary continuation and continuation of coverage under
our
group health plan for a period of six months if the termination occurs during
the first year of employment, a period of twelve months if the termination
occurs during the second year of employment or a period of eighteen months
if
the termination occurs after the second year of employment, and (ii) twelve
months acceleration of vesting of all outstanding options. In connection
with
the offer letter and as an inducement to employment, we previously granted
Mr.
van Biene an option to purchase 325,000 shares of our common stock, which
vests
over a period of three years. Upon a change of control of our company, 50%
of
Mr. van Biene’s then-outstanding unvested stock options shall vest and the
remaining unvested options shall vest in full if Mr. van Biene is terminated,
his position or base pay is reduced or he is required to relocate within
twelve
months following the change of control.
On
March
16, 2006, we entered into an employment offer letter with Lonnie Schnell,
pursuant to which Mr. Schnell serves as our Chief Financial Officer on an
“at-will” basis. Pursuant to this offer letter, Mr. Schnell will receive an
annual base salary of $185,000 and will be eligible to receive an annual
incentive bonus based upon our earnings before interest and taxes. In the
event
that Mr. Schnell’s employment is terminated by us without “cause” (as defined in
the agreement) or due to Mr. Schnell’s death or disability, then Mr. Schnell or
his estate will be entitled to receive as severance, in addition to all accrued
salary, (i) salary continuation and continuation of coverage under our group
health plan for a period of six months and (ii) six months acceleration of
vesting of all outstanding options. In connection with the offer letter and
as
an inducement to employment, we previously granted Mr. Schnell an option
to
purchase 400,000 shares of our common stock, which vests over a period of
four
years. Upon a change of control of our company, 50% of Mr. Schnell’s
then-outstanding unvested stock options shall vest and the remaining unvested
options shall vest in full if Mr. Schnell is terminated, his position or
base
pay is reduced or he is required to relocate within six months before or
twelve
months following the change of control.
On
March
16, 2006, we entered into an employment offer letter with Jonathan Burstein,
pursuant to which Mr. Burstein will continue to serve as our Executive Vice
President of Operations on an “at-will” basis. Pursuant to this offer letter,
Mr. Burstein will receive an annual base salary of $240,000 for 2006 and
of
$300,000 beginning on January 1, 2007, and will be eligible to receive an
annual
incentive bonus based upon our earnings before interest and taxes. Additionally,
on or before December 31, 2006, we agreed to pay to Mr. Burstein, at our
option,
either: (i) $60,000 in cash or (ii) 162,162 shares of our common stock and
an
option to purchase 162,162 shares of common stock with an exercise price
equal
to the fair market value on the date of grant and which options shall vest
in
full on December 31, 2006. In the event that Mr. Burstein’s employment is
terminated by us without “cause” (as defined in the agreement) or due to Mr.
Burstein’s death or disability, then Mr. Burstein or his estate will be entitled
to receive, in addition to all accrued salary, (i) severance payments equal
to
eighteen months’ base salary, payable in six monthly installments, (ii)
continuation of coverage under our group health plan for a period of eighteen
months and (iii) twelve months acceleration of vesting of all outstanding
options. In connection with the offer letter, we previously granted Mr. Burstein
an option to purchase 425,000 shares of our common stock, which vests over
a
period of three years. Upon a change of control of our company, 50% of Mr.
Burstein’s then-outstanding unvested stock options shall vest and the remaining
unvested options shall vest in full if Mr. Burstein is terminated, his position
or base pay is reduced or he is required to relocate within twelve months
following the change of control.
12
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 3,077,500, subject to certain
adjustments to prevent dilution. Our Board of Directors has approved an
amendment to our 1997 Plan to increase the
number of shares of common stock available for issuance under the 1997 Plan
from
3,077,500 shares to 6,000,000 shares, which such amendment is being submitted
to
the stockholders for approval at the Annual Meeting. 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. Our Board of Directors has approved an amendment to our 1997
Plan
to increase the
number of shares of common stock that may be issued pursuant to awards granted
to any individual under the Plan in a single year to 50% of the total number
of
shares available thereunder.
As
of
March 31, 2006, 230 shares remained available for grants of awards under
the
1997 Plan.
Equity
Compensation Plan Information
The
following table sets forth certain information as of December 31, 2005 regarding
equity compensation plans (including individual compensation arrangements)
under
which our equity securities are authorized for issuance:
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
||||||||
|
Equity
compensation plans approved by security holders
|
1,833,000
|
$
|
3.46
|
1,244,500
|
||||||
|
Equity
compensation plans not approved by security holders
|
1,377,147
|
$
|
4.36
|
-
|
||||||
|
Total
|
3,210,147
|
$
|
3.92
|
1,244,500
|
||||||
Warrants
issued pursuant to equity compensation plans not approved by security holders
are summarized as follows:
|
·
|
172,500
warrants issued for services in 2003, are exercisable at $5.06
per share
and expire in May 2008.
|
|
·
|
30,000
warrants issued for services in 2004, are exercisable at $4.29
per share
and expire in July 2007.
|
|
·
|
102,741
warrants issued in conjunction with a private placement transaction
in
2004, are exercisable at $3.65 per share and expire in November
2009.
|
|
·
|
215,754
warrants issued for services in 2004, are exercisable at $3.65
per share
and expire in November 2009.
|
|
·
|
572,818
warrants issued for services in 2003, are exercisable at $4.74
per share
and expire in December 2008.
|
|
·
|
66,667
warrants issued in conjunction with private placement transaction
in 2001
and 2002, are exercisable at $4.34 per share and expired in March
2006.
|
|
·
|
66,667
warrants issued in conjunction with private placement transaction
in 2001
and 2002, are exercisable at $4.73 per share and expired in March
2006.
|
|
·
|
150,000
warrants issued in conjunction with private placement transaction
in 2001
and 2002, are exercisable at $3.50 per share and expire at various
date
through February 2007.
|
13
Each
of
the above plans provides that the number of shares with respect to which
options
and warrants may be granted, and the number of shares of Common Stock subject
to
an outstanding option or warrant, shall be proportionately adjusted in the
event
of a subdivision or consolidation of shares or the payment of a stock dividend
on Common Stock.
14
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
stock options and otherwise administers the 1997 Plan to the extent not
administered by the full Board of Directors. 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 2005
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 2005 will be fully
deductible. With respect to compensation to be paid to executives in 2006
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
|
||
15
AUDIT
RELATED MATTERS
Report
of Audit Committee.
The
audit
committee of the Board of Directors, which consists of two 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 2005, the audit committee:
|
·
|
Reviewed
and discussed the audited financial statements for the year ended
December
31, 2005 with management and Singer Lewak Greenbaum & Goldstein LLP
(“SLGG”) the Company's independent registered public accounting
firm;
|
|
·
|
Discussed
with SLGG 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 SLGG regarding its independence
as
required by Independence Standards Board Standard No. 1. The audit
committee discussed with SLGG their independence;
and
|
|
·
|
Based
on its review of the audited financial statements and discussions
with
management and SLGG, 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, 2005 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.
The
audit
committee has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant’s
independence.
|
Audit
Committee:
|
||
|
Raymond
Musci
|
||
|
Joseph
Miller
|
||
16
Services
Provided by the Independent Auditors.
The
audit
committee of our Board of Directors is responsible for the appointment,
compensation, retention and oversight of the work of the independent
auditors.
On
December 16, 2005, we engaged Singer Lewak Greenbaum & Goldstein LLP
(“SLGG”) as our independent registered public accounting firm. BDO Seidman, LLP
(“BDO”), served as our principal independent public accounting firm for the year
ended December 31, 2004. BDO resigned as the Company’s independent public
accounting firm on November 22, 2005 upon its completed review of information
to
be included in our Form 10-Q for the quarter ended September 30, 2005.
Audit
Fees - The
aggregate fees billed by our independent registered accounting firms 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 $181,200 for fiscal year 2004 and $506,600 for fiscal year 2005.
Audit-Related
Fees - The
aggregate fees billed by our independent registered accounting firms 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) was $5,000 for fiscal year 2004 and none
for
fiscal year 2005.
Tax
Fees - The
aggregate fees billed by our independent registered accounting firms for
professional services rendered for tax compliance, tax advice and tax planning
were $43,100 and $900 for fiscal years 2004 and 2005, respectively.
All
Other Fees - There
were no fees billed by our independent registered accounting firms for services
rendered to the Company other than the services described above under “Audit
Fees,” “Audit-Related Fees” and “Tax Fees.”
The
audit
committee approved all of the foregoing services provided by BDO and
SLGG.
Policy
Regarding Pre-Approval of Services Provided by the Independent
Auditors.
The
audit
committee has established a general policy requiring it’s pre-approval of all
audit services and permissible non-audit services provided by the independent
auditors, along with the associated fees for those services. For both types
of
pre-approval, the audit committee considers whether the provision of a non-audit
service is consistent with the SEC’s rules on auditor independence, including
whether provision of the service (i) would create a mutual or conflicting
interest between the independent auditors and the Company, (ii) would place
the
independent auditors in the position of auditing its own work, (iii) would
result in the independent auditors acting in the role of management or as
an
employee of the Company, or (iv) would place the independent auditors in
a
position of acting as an advocate for the Company. Additionally, the audit
committee considers whether the independent auditors are best positioned
and
qualified to provide the most effective and efficient service, based on factors
such as the independent auditors’ familiarity with our business, personnel,
systems or risk profile and whether provision of the service by the independent
auditors would enhance our ability to manage or control risk or improve audit
quality or would otherwise be beneficial to us.
17
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,
2000 to December 31, 2005, compared with the cumulative returns of the American
Stock Exchange Market Value (U.S. & Foreign) Index and The Dow Jones US
Clothing & Accessories Index. The comparison assumes $100 was invested on
December 31, 2000 in the common stock of the Company and in each of the
foregoing indices. The stock price performance on the following graph is
not
necessarily indicative of future stock price performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG
TAG-IT PACIFIC, INC., THE AMEX MARKET VALUE (U.S. & FOREIGN)
INDEX
AND
THE
SOW JONES US CLOTHING & ACCESSORIES INDEX
*
$100
invested on 12/31/00 in stock or index-including reinvestment of
dividends.
Fiscal
year ending December 31.
|
Cumulative
Total Return
|
|||||||||||||||||||
|
12/00
|
12/01
|
12/02
|
12/03
|
12/04
|
12/05
|
||||||||||||||
|
TAG-IT
PACIFIC, INC.
|
100.00
|
97.23
|
89.35
|
110.52
|
110.77
|
8.86
|
|||||||||||||
|
AMEX
MARKET VALUE (U.S. & FOREIGN)
|
100.00
|
119.14
|
132.57
|
176.02
|
214.97
|
319.96
|
|||||||||||||
|
DOW
JONES US CLOTHING & ACCESSORIES
|
100.00
|
108.38
|
109.58
|
137.05
|
161.92
|
169.10
|
|||||||||||||
18
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 executive 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 2005, or which is presently proposed.
Transactions
involving our officers, directors, or their immediate family and
affiliates.
In
June
2005, we entered into a consulting agreement with Forte Group, LLC, a consulting
company of which Mr. Forte is an owner and executive officer, pursuant to
which
Mr. Forte provided business development services to us. During 2005, we have
paid approximately $121,000 in consulting fees to the Forte Group pursuant
to
this consulting agreement.
Todd
Kay
is a director and significant shareholder of Tarrant Apparel Group (“Tarrant”),
and Mr. Kay holds more than 5% of our common stock. We had total sales to
Tarrant for the year ended December 31, 2005 of $574,000. As of December
31,
2005, accounts receivable, related party included $560,000 due from
Tarrant.
Included
in due from related parties at December 31, 2005 is $655,000 of unsecured
notes,
advances and accrued interest receivable from Colin Dyne, a director,
significant stockholder and former officer. The notes and advances bear interest
at 0%, 8.5% and prime and, together with accrued interest, are due on demand.
Demand
notes payable to related parties at December 31, 2005 included $580,000 in
notes
and advances from Mark Dyne, a director of the Company. In addition, as of
December 31, 2005, we were indebted to Monto Holdings Pty. Ltd. in the aggregate
amount of $60,919, plus accrued interest of $99,398. Mark Dyne, our Chairman,
holds a significant equity interest in Monto Holdings Pty. Ltd. Kevin
Bermeister, a member of the compensation committee of our Board of Directors,
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. As of December 31, 2005, we were also
indebted to Harold Dyne estate in the amount of $24,250.
We
paid
consulting fees paid to Diversified Investments, a company owned by Audrey
Dyne,
mother of Colin Dyne and Mark Dyne, amounted to $150,000 in the year ended
December 31, 2005.
19
ITEM 2: INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Our
Board
of Directors has approved and is submitting to our stockholders a proposal
to
increase the number of authorized shares of common stock of the Company from
30,000,000 to 100,000,000. The additional shares of Common Stock would become
part of the existing class of Common Stock, and the additional shares, when
issued, would have the same rights and privileges as the shares of Common
Stock
now issued. There are no preemptive rights relating to the Common Stock.
The
Company's Certificate of Incorporation, as amended (“Certificate of
Incorporation”) presently authorizes the issuance of 30,000,000 shares of Common
Stock and 3,000,000 shares of Preferred Stock, each having a par value of
$0.001
per share. Of the 30,000,000 presently authorized shares of Common Stock,
18,376,180 shares were issued and outstanding on June 15, 2006, the record
date.
The Board of Directors considers it advisable to have additional shares
available for issuance, for possible future stock dividends or stock splits
and
for other corporate purposes. In addition, the Board of Directors believes
it is
desirable that the Company has the flexibility to issue shares of Common
Stock
without further stockholder action, except as required by law. The text of
the
Amendment is attached to this proxy statement as Appendix A.
If
approved by our stockholders, the amendment will become effective upon the
filing of a Certificate of Amendment with the Delaware Secretary of State.
CERTAIN
EFFECTS OF THE AMENDMENT. If this amendment is adopted, the additional shares
of
Common Stock may be issued by direction of the Board of Directors at such
times,
in such amounts and upon such terms as the Board of Directors may determine,
without further approval of the stockholders unless, in any instance, such
approval is expressly required by regulatory agencies or otherwise. The proposal
to increase the authorized capital of the Company may affect the rights of
existing holders of Common Stock to the extent that future issuances of Common
Stock reduce each existing shareholder's proportionate ownership and voting
rights in the Company. In addition, possible dilution caused by future issuances
of Common Stock could lead to a decrease in the Company's net income per
share
in future periods and a resulting decline in the market price of the Company's
Common Stock. The issuance of such additional shares might be disadvantageous
to
current stockholders in that any additional issuances would potentially reduce
per share dividends, if any. Stockholders should consider, however, that
the
possible impact upon dividends is likely to be minimal in view of the fact
that
the Company has never paid dividends, has never adopted any policy with respect
to the payment of dividends and does not intend to pay any cash dividends
in the
foreseeable future. It is not anticipated that adoption of the amendment
would
have any other effect on the holders of the Company's Common Stock. The adoption
of the amendment will not of itself cause any change in the capital accounts
of
the Company.
ANTI-TAKEOVER
PROVISIONS. We are not introducing this proposal with the intent that it
be
utilized as a type of anti-takeover device. However, the ability of the Board
of
Directors to issue additional shares of common stock without additional
stockholder approval may be deemed to have an anti-takeover effect because
unissued shares of common stock could be issued by the Board of Directors
in
circumstances that may have the effect of deterring takeover bids. For example,
without further stockholder approval, the Board of Directors could strategically
sell shares of common stock in a private transaction to purchasers who would
oppose a takeover. In addition, because stockholders do not have preemptive
rights under the Certificate of Incorporation, the rights of existing
stockholders may (depending on the particular circumstances in which the
additional shares of common stock are issued) be diluted by any such issuance
and increase the potential cost to acquire control of the Company. Although
the
Board of Directors is motivated by business and financial considerations
in
proposing this amendment, and not by the threat of any attempt to accumulate
shares or otherwise gain control of the Company, stockholders should
nevertheless be aware that approval of the amendment could facilitate efforts
by
the Company to deter or prevent changes of control in the future. The Board
of
Directors does not intend to issue any additional shares of common stock
except
on terms that it deems to be in the best interest of the Company and its
stockholders.
The
following is a description of other anti-takeover provisions in our charter
documents and other agreements. We have no current plans or proposals to
enter
into any other arrangement that could have material anti-takeover consequences:
CERTIFICATE
OF INCORPORATION. Our Certificate of Incorporation, allows our Board of
Directors to issue up to 3,000,000 shares of preferred stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by our stockholders. The rights of the holders of
our
common stock will be subject to, and may be adversely affected by, the rights
of
the holders of any preferred stock that may be issued in the future. Issuance
of
preferred stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for
a
third party to acquire a majority of our outstanding voting stock. We have
no
current plans to issue shares of preferred stock.
20
DELAWARE
LAW. In addition, the Company is subject to the anti-takeover provisions
of
Section 203 of Delaware General Corporation Law, which prohibit us from engaging
in a “business combination” with an “interested stockholder” for a period of
three years after the date of the transaction in which the person became
an
interested stockholder, unless the business combination is approved in the
prescribed manner. The application of Section 203 and certain provisions
of our
Certificate of Incorporation, including a classified Board of Directors,
may
have the effect of delaying or preventing changes in control of our management,
which could adversely affect the market price of our common stock by
discouraging or preventing takeover attempts that might result in the payment
of
a premium price to our stockholders.
EFFECTIVE
DATE OF THE AUTHORIZED SHARE INCREASE. If the amendment is approved by the
requisite vote of our stockholders, the increase in the authorized shares
of
Common Stock will be effective upon the close of business on the date of
filing
of the Certificate Amendment with the Delaware Secretary of State, which
filing
is expected to take place shortly after the Annual Meeting. However, the
exact
timing of the filing of the Certificate Amendment will be determined by the
Board of Directors based upon its evaluation as to when such action will
be most
advantageous to us and our stockholders, and the Board of Directors reserves
the
right to delay filing the Amendment for up to twelve months following
stockholder approval thereof. In addition, the Board of Directors reserves
the
right, notwithstanding stockholder approval and without further action by
the
stockholders, to elect not to proceed with the Amendment if, at any time
prior
to filing the Certificate of Amendment, the Board of Directors, in its sole
discretion, determines that it is no longer in the best interests of the
Company
and the stockholders. If this proposal is not approved by the stockholders,
then
the Certificate of Amendment will not be filed.
OTHER
ANTI-TAKEOVER MEASURES. We
have
adopted a stockholders’ rights plan, which provides for certain adverse
consequences, including substantial dilution, to persons who acquire in excess
of a specified percentage of our outstanding voting securities without first
obtaining the approval of our Board of Directors. The stockholders’ rights plan
could make it more difficult for third parties to acquire us by offering
to
purchase shares of our common stock from existing stockholders at a premium
to
the shares’ then prevailing market price.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE
AMENDMENT TO THE COMPANY’S CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED SHARES OF COMMON STOCK FROM 30,000,000 TO
100,000,000.
21
ITEM
3: APPROVAL
OF AMENDMENT TO THE 1997 STOCK PLAN TO INCREASE THE MAXIMUM NUMBER OF SHARES
OF
COMMON STOCK THAT MAY BE ISSUED PURSUANT TO AWARDS GRANTED THEREUNDER FROM
3,077,500 TO 6,000,000 SHARES.
The
Board
of Directors has approved an amendment (the “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 3,077,500 shares to 6,000,000 shares.
The
1997 Plan, as amended (the “Plan”), is attached hereto as Appendix B. The
Amendment is being submitted to the Company’s stockholders
for
approval.
The
Board
of Directors approved the Amendment on March 28, 2006, to ensure that a
sufficient number of shares of common stock are available for issuance under
the
Plan. At March 31, 2006, 230 shares remained available for grants of awards
under the 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 Plan will enable the Company to continue to realize the
benefits of granting stock-based compensation.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE
AMENDMENT TO THE 1997 STOCK PLAN TO INCREASE
THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ISSUED PURSUANT
TO
AWARDS GRANTED THEREUNDER FROM 3,077,500 TO 6,000,000
SHARES.
ITEM
4: APPROVAL
OF AMENDMENT TO THE 1997 STOCK PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK THAT MAY BE ISSUED PURSUANT TO AWARDS GRANTED TO ANY INDIVIDUAL UNDER
THE
PLAN IN A SINGLE YEAR TO 50% OF THE TOTAL NUMBER OF SHARES AVAILABLE
THERUNDER.
The
Board
of Directors has approved an Amendment to the Tag-It Pacific, Inc. 1997 Stock
Plan to increase the number of shares of common stock that may be issued
pursuant to awards granted to any individual under the Plan in a single year
to
50% of the total number of shares available thereunder. The Plan, as amended,
is
attached hereto as Appendix B. The Amendment is being submitted to the Company’s
stockholders
for
approval.
The
Board
of Directors approved the Amendment on March 28, 2006, in order to increase
the
number of shares available for issuance to any individual under the Plan
in a
single year. Currently, under the 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 Plan. The Board believes
that increasing the number of shares that may be awarded to any individual
under
the Plan in a single year will increase the Company’s ability to attract and
retain qualified personnel. In addition, establishing a higher limit on the
number of shares which may be issued under the Plan will assure that the
Plan
will retain flexibility necessary to remain a critical element of our
compensation program in order to attract and retain key executive employees.
SECTION
162(M) LIMITATIONS
The
following is intended only as a brief summary of the federal income tax rules
relevant to the grant of options to certain officers. These rules are highly
technical and subject to change in the future.
Section
162(m) of the Code, generally disallows the deduction of compensation income
in
excess of $1,000,000 paid to a “covered employee.” Thus, if an officer remains a
“covered employee,” meaning either the Chief Executive Officer or one of the
other four most highly compensated employees of the Company whose compensation
is required to be disclosed under the Exchange Act, and he were to exercise
his
options such that he receives more than $1,000,000 in compensation in any
given
taxable year, the Company would not be allowed to deduct that portion of
such
officer's otherwise deductible compensation that exceeded $1,000,000.
Section
162(m) of the Code does not apply, however, to compensation that meets the
following four criteria: (i) the compensation is based solely on the attainment
of performance goals; (ii) the performance goals are determined by a
compensation committee of the Board of Directors comprised solely of two
or more
outside directors; (iii) the material terms of the compensation are disclosed
to
stockholders and approved by a majority vote of the stockholders; and (iv)
certification by the compensation committee that the performance goals have
been
met. In addition, Treasury Regulation Section 1.162-27(e)(4)(iv) requires
that
the compensation payable must be specific enough so that a stockholder can
determine the maximum amount of compensation that could be paid to any employee
during a specific period. A stock option plan that provides a limit with
respect
to the maximum number of shares underlying stock options that may be granted
to
any employee during a specified period and the exercise price of those options
satisfies Treasury Regulation Section 1.162- 27(e)(4)(iv).
22
The
1997
Stock Plan as previously adopted contains all provisions necessary to satisfy
the requirements of Section 162(m) of the Code, including a provision limiting
the number of stock option grants. If this proposed amendment to the 1997
Stock
Plan is approved by the stockholders, all compensation received by a Named
Executive Officer as a result of the exercise of stock options granted under
the
1997 Stock Plan will be deductible by the Company.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE
AMENDMENT TO THE 1997 STOCK PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE ISSUED PURSUANT
TO
AWARDS GRANTED TO ANY INDIVIDUAL UNDER THE PLAN IN A SINGLE YEAR TO 50% OF
THE
TOTAL NUMBER OF SHARES AVAILABLE THEREUNDER.
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.
Our
Board of Directors has approved an amendment to our 1997 Plan to increase
the
number of shares of common stock that may be issued pursuant to awards granted
to any individual under the Plan in a single year to 50% of the total number
of
shares available thereunder.
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.
23
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 and Stock
Grants.
The
following is a general discussion of the principal United States federal
income
tax consequences of “incentive stock options” within the meaning of Section 422
of the Code (“Incentive Stock Options”), non-statutory stock options
(“Non-statutory Stock Options”) and restricted stock awards 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).
Stock
Options
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.
24
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.
Stock
Grants
Shares
of
restricted stock purchased under the 1997 Plan will generally be subject
to
rights of repurchase and other transfer restrictions, which may be deemed
to
create a “substantial risk of forfeiture” under Section 83 of the Internal
Revenue Code. If there is a substantial risk of forfeiture, then the person
acquiring the restricted stock will not recognize income until the restricted
stock becomes vested (unless a Section 83(b) election is made, as described
below), at which time the person must recognize as ordinary income the fair
market value of the restricted at
that time
less the
original purchase price for the restricted stock. However, under Section
83(b)
of the Internal Revenue Code, a recipient may elect to recognize ordinary
income
in the year the restricted stock is acquired, rather then waiting until it
vests
and the recipient will be required to recognize as ordinary income at the
time
of the restricted stock purchased the difference, if any, between the fair
market value of the Common Stock on the date of purchase and the purchase
price
paid for the restricted stock. If a Section 83(b) election is made, the
recipient will not be required to recognize any income when the restricted
stock
vests. If a person sells restricted stock after it is vested (or after making
a
Section 83(b) election), he or she will recognize taxable gain or loss equal
to
the difference between (a) the amount realized upon the sale of the shares
and
(b) the amount paid for the restricted stock plus any amount which the person
has included in gross income pursuant to the Section 83(b) election). Upon
any
subsequent disposition of the shares, any further gain or loss recognized
by the
recipient will likely be treated as capital gain or loss and will be long-term
capital gain or loss if the shares are held for more than one year after
exercise. The Company will normally be allowed, at the time of recognition
of
ordinary income by the recipient upon purchase of the shares, to take a
deduction for federal income tax purposes in an amount equal to such recognized
income.
25
Beneficial
Ownership Table
The
following table presents information regarding the beneficial ownership of
our
common stock as of June 15, 2006:
|
·
|
each
person who is known to us to be the beneficial owner of more than
5% of
our outstanding common stock;
|
|
·
|
each
of our directors;
|
|
·
|
each
of our executive officers; and
|
|
·
|
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 June 15, 2006. 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. As of June 15, 2006, we had 18,376,180 shares of common
stock issued and outstanding.
The
address of each person listed is in our care, at 21900 Burbank Boulevard,
Suite
270, Woodland Hills, California 91367, unless otherwise set forth below such
person’s name.
|
Name
of Beneficial Owner
|
Number
of Shares
|
Percent
of Class
|
|||||
|
Directors
and Executive Officers:
|
|||||||
|
Mark
Dyne (1)
|
1,323,112
|
7.0
|
%
|
||||
|
Colin
Dyne (2)
|
1,229,580
|
6.5
|
%
|
||||
|
Jonathan
Burstein (3)
|
313,788
|
1.7
|
%
|
||||
|
Kevin
Bermeister (4)
|
247,117
|
1.3
|
%
|
||||
|
Stephen
P. Forte (5)
|
190,052
|
1.0
|
%
|
||||
|
Brent
Cohen (6)
|
95,000
|
*
|
|||||
|
Lonnie
D. Schnell
|
60,000
|
*
|
|||||
|
Raymond
Musci (7)
|
30,000
|
*
|
|||||
|
Joseph
M. Miller (7)
|
30,000
|
*
|
|||||
|
Susan
White (7)
|
30,000
|
*
|
|||||
|
Wouter
van Biene
|
26,000
|
*
|
|||||
|
Directors
and executive officers as a group (11 persons) (11)
|
3,574,649
|
18.0
|
%
|
||||
|
5%
Holders:
|
|||||||
|
Todd
Kay
3151
East Washington Blvd.
Los
Angeles, CA 90023
|
1,003,500
|
5.5
|
%
|
||||
|
Harris
Toibb(8)
307
21st
Street
Santa
Monica, CA 90402
|
1,501,398
|
8.0
|
%
|
||||
|
The
Pinnacle Fund, L.P. (9)(10)
4965
Preston Park Blvd., Suite 240
Plano,
Texas 75093
|
1,095,890
|
5.6
|
%
|
||||
26
|
*
|
Less
than one percent.
|
|
(1)
|
Includes
293,000 shares of common stock reserved for issuance upon exercise
of
stock options which are currently exercisable, 83,334 shares of
common
stock reserved for issuance upon exercise of warrants which are
currently
exercisable and 111,111 shares of common stock reserved for issuance
upon
conversion of debt which is currently convertible. Includes 176,600
shares
held by a Limited Liability Company of which Mr. Dyne is the Manager
and
Member.
|
|
(2)
|
Includes
535,000 shares of common stock reserved for issuance upon exercise
of
stock options which are currently exercisable.
|
|
(3)
|
Includes
175,000 shares of common stock reserved for issuance upon exercise
of
stock options which are currently exercisable.
|
|
(4)
|
Includes
90,000 shares of common stock reserved for issuance upon exercise
of stock
options which are currently exercisable.
|
|
(5)
|
Includes
25,000 shares of common stock owned indirectly by Family
Trust.
|
|
(6)
|
Consists
of 95,000 shares of common stock reserved for issuance upon exercise
of
stock options which are currently exercisable.
|
|
(7)
|
Consists
of 30,000 shares of common stock reserved for issuance upon exercise
of
stock options which are currently exercisable.
|
|
(8)
|
Includes
333,332 shares of common stock reserved for issuance upon exercise
of
warrants which are currently
exercisable.
|
|
(9)
|
Includes
1,095,890 shares of common stock reserved for issuance upon conversion
of
convertible promissory notes which are currently
convertible.
|
|
(10)
|
Pursuant
to the terms of convertible promissory notes and warrants held
by The
Pinnacle Fund, L.P., the maximum number of shares that may be acquired
by
the stockholder upon any exercise of its warrant or conversion
of its
promissory note is limited to the extent necessary to ensure that,
following such exercise, the total number of shares of common stock
then
beneficially owned by the stockholder and its affiliates and any
other
persons whose beneficial ownership of common stock would be aggregated
with the selling stockholder for purposes of Section 13(d) of the
Exchange
Act, does not exceed 9.99% of the total number of issued and outstanding
shares of our common stock then outstanding. The shares of common
stock
and percentage ownership listed in this table do not reflect these
contractual limitations on such stockholders’ ability to acquire common
shares upon exercise of its warrant or conversion of its promissory
note.
|
|
(11)
|
Includes
1,278,000 shares of common stock reserved for issuance upon exercise
of
stock options which currently are exercisable, 111,111 shares of
common
stock reserved for issuance upon conversion of debt which is currently
convertible and 83,334 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.
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our 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, we believe that,
during the year ended December 31, 2005, all of the Company’s executive
officers, directors and greater-than-ten percent stockholders complied with
all
Section 16(a) filing requirements.
STOCKHOLDER
PROPOSALS
Any
stockholder who intends to present a proposal at the 2007 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 March 2, 2007. In addition, in the event a
stockholder proposal is not received by the Company by May 16, 2007, the
Proxy
to be solicited by the Board of Directors for the 2007 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares
if
the proposal is presented at the 2007 Annual Meeting without any discussion
of
the proposal in the Proxy Statement for such meeting.
27
SEC
rules
and regulations provide that if the date of the Company’s 2007 Annual Meeting is
advanced or delayed more than 30 days from the date of the 2006 Annual Meeting,
stockholder proposals intended to be included in the proxy materials for
the
2007 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 2007
Annual Meeting. Upon determination by the Company that the date of the 2007
Annual Meeting will be advanced or delayed by more than 30 days from the
date of
the 2006 Annual Meeting, the Company will disclose such change in the earliest
possible Quarterly Report on Form 10-Q.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Singer
Lewak Greenbaum & Goldstein LLP (“SLGG”), independent registered public
accounting firm, was selected by the Board of Directors to serve as the
independent registered public accounting firm of the Company for fiscal 2006.
Representatives of SLGG 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.
28
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, 2005, WILL BE MADE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO LONNIE D.
SCHNELL, CHIEF FINANCIAL OFFICER, TAG-IT PACIFIC, INC., 21900 BURBANK BOULEVARD,
SUITE 270, WOODLAND HILLS, CALIFORNIA 91367.
|
ON
BEHALF OF THE BOARD OF DIRECTORS
|
||
|
|
||
|
Lonnie
D. Schnell
|
||
|
Chief
Financial Officer
|
Tag-It
Pacific, Inc.,
21900
Burbank Boulevard, Suite 270,
Woodland
Hills, California 91367
June
[__], 2006
29
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 Stephen Forte and
Lonnie
D. Schnell, 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 July 31, 2006, 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 three nominees as Class III directors:
|
Mark
Dyne
|
Colin
Dyne
|
Raymond
Musci
|
¨
FOR ALL
NOMINEES LISTED ABOVE (except as marked to the contrary below)
¨
WITHHELD
for all nominees listed above
(INSTRUCTION:
To withhold authority to vote for any individual nominee, write that nominee’s
name in the space below:)
_______________________________________________________________________________
The
undersigned hereby confer(s) upon the proxies and each of them discretionary
authority with respect to the election of directors in the event that any
of the
above nominees is unable or unwilling to serve.
|
Proposal
2.
|
To
amend the Company’s Certificate of Incorporation to increase the number of
authorized shares of common stock from 30,000,000 to 100,000,000;
|
|
¨
FOR
|
¨
AGAINST
|
¨
ABSTAIN
|
|
Proposal
3.
|
To
approve an amendment to the Company’s 1997 Stock Plan to increase the
maximum number of shares of common stock that may be issued pursuant
to
awards granted under the Plan from 3,077,500 to 6,000,000
shares;
|
|
¨
FOR
|
¨
AGAINST
|
¨
ABSTAIN
|
|
Proposal
4.
|
To
approve an amendment to the Company’s 1997 Stock Plan to increase the
number of shares of common stock that may be issued pursuant to
awards
granted to any individual under the Plan in a single year to 50%
of the
total number of shares available 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
June [___], 2006 and the accompanying Proxy Statement relating to the Annual
Meeting.
|
Dated:___________________________,
2006
|
|
|
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
APPENDIX
A
CERTIFICATE
OF AMENDMENT
OF
CERTIFICATE
OF INCORPORATION
OF
TAG-IT
PACIFIC, INC.
The
undersigned, Lonnie D. Schnell, Chief Financial Officer, of Tag-It Pacific,
Inc.
(the “Corporation”), a corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware (the “GCL”), does hereby
certify pursuant to Section 103 of the GCL as to the following:
1. The
name
of the Corporation is Tag-It Pacific, Inc. The original Certificate of
Incorporation was filed with the Secretary of State of Delaware on September
30,
1997.
2. The
Board
of Directors of the Corporation, pursuant to Section 242 of the GCL, adopted
the
following resolutions:
RESOLVED,
that the first paragraph of ARTICLE IV of the Certificate of Incorporation
is
amended to read in its entirety as follows:
“This
Corporation is authorized to issue two classes of shares, designated,
respectively, “Preferred Stock” and “Common Stock.” Each class of stock shall
have a par value of $.001 per share. The number of shares of Preferred Stock
authorized to be issued is 3,000,000 and the number of shares of Common Stock
authorized to be issued is 100,000,000.”
3. Pursuant
to resolution of the Board of Directors of the Corporation, an annual meeting
of
the stockholders of the Corporation was duly called and held, upon notice
in
accordance with Section 222 of the GCL at which meeting the necessary number
of
shares as required by statute were voted in favor of the amendment.
IN
WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment
of
Certificate of Incorporation as of the [__]th
day of
June, 2006.
| ________________ | |
|
Lonnie
D. Schnell,
|
|
|
Chief
Financial Officer
|
APPENDIX B
TAG-IT
PACIFIC, INC.
AMENDED
AND RESTATED
1997
STOCK PLAN
|
1)
|
Purpose
of the Plan.
|
The
purpose of this Amended and Restated 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 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 50% 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.
3
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5)
|
Shares
of Common Stock Subject to the
Plan.
|
The
aggregate number of shares of Common Stock that may be issued or issuable
pursuant to all Awards under the Plan (including Awards in the form of Incentive
Stock Options and Non-Statutory Stock Options) shall not exceed an aggregate
of
6,000,000 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.
4
c) Rights
as Stockholder.
A
participant under the Plan shall have no rights as a holder of Common Stock
with
respect to Awards hereunder, unless and until certificates for shares of
such
stock are issued to the participant.
d) Assignment
or Transfer.
Subject
to the discretion of the Board, and except with respect to Incentive Stock
Options which are not transferable except by will or the laws of descent
and
distribution, Awards under the Plan or any rights or interests therein shall
be
assignable or transferable.
e) Agreements.
All
Awards granted under the Plan shall be evidenced by written agreements in
such
form and containing such terms and conditions (not inconsistent with the
Plan)
as the Board shall from time to time adopt.
f) Withholding
Taxes.
The
Company shall have the right to deduct from all Awards hereunder paid in
cash
any federal, state, local or foreign taxes required by law to be withheld
with
respect to such awards and, with respect to awards paid in stock, to require
the
payment (through withholding from the participant’s salary or otherwise) of any
such taxes. The obligation of the Company to make delivery of Awards in cash
or
Common Stock shall be subject to the restrictions imposed by any and all
governmental authorities.
g) No
Rights to Award.
No
Participant or other person shall have any right to be granted an Award under
the Plan. Neither the Plan nor any action taken hereunder shall be construed
as
giving any Participant any right to be retained in the employ of the Company
or
any of its subsidiaries or shall interfere with or restrict in any way the
rights of the Company or any of its subsidiaries, which are hereby reserved,
to
discharge a Participant at any time for any reason whatsoever, with or without
good cause.
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.
5
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.
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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.
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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.
6