SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2)
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
TAG-IT PACIFIC, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE>
TAG-IT PACIFIC, INC.
-----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1999
-----------
TO OUR STOCKHOLDERS:
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
Tag-It Pacific, Inc. (the "Company") will be held at ________ , California
______, on Wednesday, June 16, 1999 at 10:30 a.m., Pacific Daylight Savings
time. The Annual Meeting is being held for the following purposes:
1. To elect two Class I Directors to hold office for two years and
until their respective successors have been elected. The persons
nominated by the Board of Directors of the Company (Mr. Brent
Cohen and Ms. Diana Maranon) are described in the accompanying
Proxy Statement;
2. To elect three Class II Directors to hold office for three years
and until their respective successors have been elected. The
persons nominated by the Board of Directors of the Company
(Messrs. Harold Dyne, Michael Katz and Paul Markiles) are
described in the accompanying Proxy Statement;
3. To approve an amendment to the Company's 1997 Stock Plan to
increase the maximum number of shares of Common Stock that may be
issued pursuant to awards granted under the plan from 562,500
shares to 1,177,500 shares;
4. To approve an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized Common Stock,
par value $.001 per share, by 15,000,000 shares to an aggregate
of 30,000,000 shares; and
5. To transact such other business as may properly come before the
Annual Meeting or any of its adjournments or postponements.
Only stockholders of record of the Common Stock of the Company at the
close of business on May 7, 1999 are entitled to notice of, and to vote at, the
Annual Meeting and at any of its adjournments or postponements.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to mark, sign and return the enclosed Proxy as promptly as possible in the
postage prepaid envelope enclosed for that purpose. Any stockholder of record
attending the Annual Meeting may vote in person, even though he or she has
returned a Proxy. Any stockholder whose shares are held in the name of a bank,
broker or other holder of record must obtain a proxy, executed in the
stockholder's favor, from the holder of record to be able to vote in person at
the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Francis Shinsato
CHIEF FINANCIAL OFFICER
Los Angeles, California
May 21, 1999
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS PROMPTLY AS
POSSIBLE. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES
REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD BE
COMPLETED AND RETURNED.
<PAGE>
TAG-IT PACIFIC, INC.
3820 SOUTH HILL STREET
LOS ANGELES, CALIFORNIA 90037
(323) 234-9606
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Tag-It Pacific, Inc., a Delaware
corporation (the "Company"), for use at the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at __________, California __________, on
Wednesday, June 16, 1999 at 10:30 a.m., Pacific Daylight Savings time, and at
any of its adjournments or postponements, for the purposes set forth herein and
in the attached Notice of Annual Meeting of Stockholders. Accompanying this
Proxy Statement is the Board of Directors' Proxy for the Annual Meeting, which
you may use to indicate your vote on the proposals described in this Proxy
Statement.
All Proxies which are properly completed, signed and returned to the
Company prior to the Annual Meeting, and which have not been revoked, will,
unless otherwise directed by the stockholders, be voted in accordance with the
recommendations of the Board of Directors set forth in this Proxy Statement. A
stockholder who submits the enclosed proxy will not limit his or her right to
vote at the Annual Meeting if the stockholder later decides to attend in person.
A stockholder whose shares are held in the name of a bank, broker or other
holder of record must obtain a proxy, executed in the stockholder's favor, from
the holder of record to be able to vote in person at the Annual Meeting. A
stockholder of record may revoke his or her Proxy at any time before it is voted
either by filing with the Secretary of the Company, at its principal executive
offices, a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the Annual Meeting and expressing a desire to vote his or
her shares in person.
The close of business on May 7, 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or at any adjournments or postponements of the Annual Meeting. At
the record date, 6,726,677 shares of Common Stock, par value $.001 per share
(the "Common Stock"), were outstanding. The Common Stock is the only outstanding
class of capital stock of the Company entitled to vote at the Annual Meeting.
It is anticipated that this Proxy Statement and the accompanying Proxy
will be mailed to stockholders on or about May 21, 1999.
VOTING PROCEDURES
A stockholder is entitled to cast one vote for each share of Common
Stock held on the record date on all matters to be considered at the Annual
Meeting. A majority of the outstanding shares of Common Stock must be
represented in person or by proxy at the Annual Meeting in order to constitute a
quorum for the transaction of business. The two nominees for election as Class I
directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected. The three nominees for election as Class II directors at
the Annual Meeting who receive the highest number of affirmative votes will be
elected. The amendment of the 1997 Stock Plan to increase by 615,000 the number
of shares of Common Stock that may be issued pursuant to awards under the 1997
Stock Plan will require the affirmative vote of a majority of the votes entitled
to be cast by holders of outstanding shares of Common Stock that are present or
represented by proxy at the Annual Meeting. The amendment of the Company's
Certificate of Incorporation to increase the Company's authorized Common Stock
by 15,000,000 shares will require the affirmative vote of a majority of the
votes entitled to be cast by the holders of all outstanding shares of Common
Stock. Abstentions and broker non-votes will be included in the number of shares
present at the Annual Meeting for the purpose of determining the presence of a
quorum. Abstentions will be counted toward the tabulation of votes cast on
proposals submitted to stockholders and will have the same effect as negative
votes, while broker non-votes will not be counted as votes cast for or against
such matters.
<PAGE>
ELECTION OF DIRECTORS
In accordance with the Certificate of Incorporation of the Company, the
Board of Directors is divided into three classes. At each annual meeting of
stockholders, directors constituting one class are elected, each for a
three-year term. The term of the initial Class I directors was scheduled to
terminate on the date of the Company's 1998 Annual Meeting of Stockholders, and
the term of the initial Class II directors is scheduled to terminate on the date
of the Annual Meeting. The Company did not hold a 1998 Annual Meeting of
Stockholders. Accordingly, two Class I directors and three Class II directors
will be elected at the Annual Meeting.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting or at any of
its postponements or adjournments, the Proxies will be voted for such other
nominee(s) as shall be designated by the current Board of Directors to fill any
vacancy. The Company has no reason to believe that any nominee will be unable or
unwilling to serve if elected as a director.
1. The Board of Directors proposes the election of the following
nominees as Class I directors:
Diana Maranon
Brent Cohen
If elected, each nominee for Class I director is expected to serve
until the 2001 Annual Meeting of Stockholders. The two nominees for election as
Class I directors at the Annual Meeting who receive the highest number of
affirmative votes will be elected.
2. The Board of Directors proposes the election of the following
nominees as Class II directors:
Harold Dyne
Michael Katz
Paul Markiles
If elected, each nominee for Class II director is expected to serve
until the 2002 Annual Meeting of Stockholders. The three nominees for election
as Class II directors at the Annual Meeting who receive the highest number of
affirmative votes will be elected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE NOMINEES LISTED ABOVE.
2
<PAGE>
INFORMATION WITH RESPECT TO NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth certain information with respect to the
nominees, continuing directors and executive officers of the Company as of April
15, 1999.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR POSITION
---- --- -------- --------
NOMINEES:
CLASS I DIRECTORS
(terms to expire in 2001)
<S> <C> <C> <C>
Diana Maranon (1)........................ 40 1997 Director
Brent Cohen (1).......................... 40 1998 Director
CLASS II DIRECTORS
(terms to expire in 2002)
Harold Dyne (2).......................... 66 1997 President and Director
Michael Katz............................. 57 1998 Director
Paul Markiles (3)........................ 65 1998 Director
CONTINUING DIRECTORS:
CLASS III DIRECTORS
(terms to expire in 2000)
Mark Dyne (2)............................ 38 1997 Chairman of the Board
Colin Dyne (2)........................... 35 1997 Chief Executive Officer and Director
OTHER EXECUTIVE OFFICERS:
Francis Shinsato......................... 48 Chief Financial Officer
Jonathan Markiles (3).................... 34 Executive Vice President, Strategic
Planning and Business Development, and
Secretary
Jonathan Burstein (4).................... 32 Executive Vice President, Sales and
Marketing
<FN>
- ----------------------
(1) Member of the Compensation Committee and the Audit Committee.
(2) Colin Dyne and Mark Dyne are brothers, and Harold Dyne is their Father.
(3) Jonathan Markiles is the son of Paul Markiles.
(4) Jonathan Burstein is Harold Dyne's son-in-law and Colin Dyne's and Mark
Dyne's brother-in-law.
</FN>
</TABLE>
DIANA MARANON has served as a director of the Company since 1998. Ms.
Maranon is the President and Managing Director of Averil Capital Markets Group,
Inc. ("Averil"), a financial advisory firm and member of the National
Association of Securities Dealers, and serves as a director of Brilliant Digital
Entertainment, Inc., a production and development studio involved in the
production of a new generation of digital entertainment, and Virgin Interactive
Entertainment Limited, a distributor of computer software programs and video
games. Prior to founding Averil in 1994, Ms. Maranon was a Vice President with
Wasserstein Perella & Co., Inc., an investment banking firm, with whom she
started in 1988. From 1985 to 1988, Ms. Maranon practiced securities law with
Skadden Arps Slate Meagher & Flom. Ms. Maranon is a member of the State Bar of
California.
BRENT COHEN has served as a director of the Company since 1998. From
October 1998 to the present, Mr. Cohen has been pursuing potential business
opportunities. From 1996 to October 1998, Mr. Cohen served as President of the
Consumer Products and International divisions of Packard Bell NEC, Inc. From
1987 to 1996, Mr. Cohen served in various positions with Packard Bell,
culminating with the position of Chief Financial Officer
3
<PAGE>
and Chief Operating Officer. Prior to joining Packard Bell NEC, Inc., Mr. Cohen
was employed with Ernst & Young in their management consulting practice. Mr.
Cohen has an MBA and is a Chartered Accountant in the Republic of South Africa.
HAROLD DYNE has served as President and a director of the Company since
October 1997. Mr. Dyne, founder of Pacific Trim & Belt, Inc., a subsidiary of
the Company, has served as Chief Executive Officer of Pacific Trim since it was
founded in 1987. Mr. Dyne has been involved in the apparel industry since 1958,
when he founded the Union Fasteners Corporation in South Africa. In 1971, he
formed a joint venture with YKK Zipper Manufacturing Company in Southern Africa.
MICHAEL KATZ has served as a director of the Company since 1998. From
1987 to the present, Mr. Katz has served as President, Chief Operating Officer
and director of Transducer Controls Corporation, a manufacturer of position and
pressure transducers. During the same period. Mr. Katz has also served as
President, Chief Operating Officer and director of Tedea-Huntleigh, Inc., a
manufacturer of load-cells and force-transducers. Since September 1996, Mr. Katz
has held the position of Chairman of the Board of Filtomat, Inc., a manufacturer
of automatic industrial water filters.
PAUL MARKILES has served as a director of the Company since 1998. Prior
to his retirement in 199l, Mr. Markiles served as President and Chief Executive
Officer of Windshields America, Inc., a subsidiary of South African Breweries.
Mr. Markiles was responsible for the founding and expansion of Windshields
America into a national chain of over 120 retail autoglass stores.
MARK DYNE has served as Chairman of the Board of Directors of the
Company since September 1997. Mr. Dyne currently is Chairman of the Board of
Directors and Chief Executive Officer of Brilliant Digital Entertainment, Inc.,
a position he has held since October 1996. Mr. Dyne is a director and equity
owner of Sega Ozisoft Pty. Ltd. and previously served as its Co-Chief Executive
Officer. Mr. Dyne helped found Sega Ozisoft in 1982. Sega Ozisoft, now a
majority owned subsidiary of Infogrames Entertainment (France), is a computer
software distributor for many leading publishers including, among others, Virgin
Interactive, Accolade, Access, Codemasters and Eidos. Mr. Dyne currently is a
director of Monto Holdings Pty. Ltd. and a co-owner of Packard Bell NEC
Australia Pty. Ltd. Monto is a private investment holding company and Packard
Bell NEC Australia is one of the leading manufacturers and distributors of
personal computers through the Australian mass merchant channel. From June 1995
through May 1997, Mr. Dyne served as a Co-Chief Executive Officer of Sega
Enterprises (Australia) Pty. Ltd., a theme park developer. Sega Enterprises is
owned jointly by Mr. Dyne, Mr. Bermeister, Sega Enterprises Japan, Mitsubishi
Corp. and Mitsui Corp. Mr. Dyne also serves on the Board of Directors of Virgin
Interactive Entertainment Limited, a distributor of computer software programs
and video games, and has an equity interest therein. Mr. Dyne is a member of the
Board of Directors of Sega Gaming Technologies, Inc., a Nevada company in the
business of producing multiplayer casino equipment.
COLIN DYNE has served as Chief Executive Officer and a director of the
Company since October 1997. Mr. Dyne founded Tag-It, Inc., a subsidiary of the
Company, in 1991 with his father, Harold Dyne, and has served as its President
since inception. Prior to founding Tag-It, Inc. in 1991, Mr. Dyne worked in
numerous positions within the stationery products industry, including owning and
operating retail stationery businesses and servicing the larger commercial
products industry through contract stationery and printing operations.
FRANCIS SHINSATO was appointed Chief Financial Officer of the Company
in November 1997. Prior to joining the Company, from February 1997 through
October 1997, Mr. Shinsato was an independent accounting and information systems
consultant. From January 1996 until February 1997, Mr. Shinsato was the
Controller of Centon Electronics, Inc., a privately held computer memory
manufacturer where he was responsible for financial statement preparation and
credit and collection management. From 1985 to 1995, Mr. Shinsato served as the
Vice President of Finance and Controller of Newport Electronics, Inc. and
oversaw all financial, accounting and management information systems. Newport
Electronics, Inc. is a designer and manufacturer of test and measurement
equipment and was a publicly traded company until 1992. Mr. Shinsato is a
certified public accountant.
JONATHAN MARKILES is Executive Vice President, Strategic Planning and
Business Development, and Secretary of the Company. Mr. Markiles joined Tag-It,
Inc. in May 1994 as its General Manager where he has
4
<PAGE>
been responsible for production, distribution and international operations.
Prior to joining Tag-It, Inc., Mr. Markiles received his M.B.A. from the
University of Southern California in May 1994. From 1987 until August 1992, Mr.
Markiles held various operational positions with Windshields America, Inc., a
national chain of autoglass stores.
JONATHAN BURSTEIN is Executive Vice President, Sales and Marketing of
the Company. From 1987 until the present, Mr. Burstein has been employed by
Pacific Trim & Belt, Inc., where he has been responsible for managing many of
Pacific Trim's largest customer accounts and supervising Pacific Trim's sales
force. Mr. Burstein also has been responsible for implementing systems and
protocols in the purchasing department as well as developing and managing
Pacific Trim's key supply lines. In August 1998, Mr. Burstein relocated to the
Company's New York office to assist the Company in establishing a greater
presence in the eastern region of the country.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 4 meetings and acted 2 additional times by
unanimous written consent during fiscal 1998. No director attended less than 75%
of all the meetings of the Board of Directors and those committees on which he
or she served in fiscal 1998.
The Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee currently consists of Ms. Maranon and Mr. Cohen.
The Audit Committee recommends the engagement of the Company's independent
public accountants, reviews the scope of the audit to be conducted by such
independent public accountants and meets with the independent public accountants
and the Chief Financial Officer of the Company to review matters relating to the
Company's financial statements, the Company's accounting principles and its
system of internal accounting controls, and the committee reports its
recommendations as to the approval of the financial statements of the Company to
the Board of Directors. One meeting of the Audit Committee was held during
fiscal 1998.
The Compensation Committee currently consists of Ms. Maranon and Mr.
Cohen. The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering the Company's stock option and executive
incentive compensation plans. The Compensation Committee held one meeting during
fiscal 1998.
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company currently are paid $1,500 for
their personal attendance at any meeting of the Board of Directors and $500 for
attendance at any telephonic meeting of the Board of Directors or at any meeting
of a committee of the Board of Directors. Ms. Maranon and Messrs. Mark Dyne,
Cohen, Katz and Markiles, all nonemployee directors, also received options to
purchase 25,000, 78,000, 20,000, 15,000 and 15,000 shares of Common Stock,
respectively, in fiscal 1998. Directors also are reimbursed for their reasonable
travel expenses incurred in attending Board or committee meetings.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and
as to each of the other four most highly compensated officers whose compensation
exceeded $100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to the Company in all
capacities during the last three fiscal years.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NUMBER OF
OTHER SECURITIES
FISCAL YEAR ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION ENDED(1) SALARY COMPENSATION(2) OPTIONS(3)
--------------------------- -------- ------ --------------- ----------
<S> <C> <C> <C> <C>
Colin Dyne............................ December 31, 1998 $ 229,251 $ 23,040 98,000
Chief Executive Officer December 31, 1997 $ 229,251 $ 22,773 --
August 31, 1997 $ 227,340 $ 22,773 --
Harold Dyne........................... December 31, 1998 $ 214,234 $ 30,156 98,000
President December 31, 1997 $ 214,814 $ 24,832 --
August 31, 1997 $ 214,334 $ 24,832 --
Jonathan Burstein..................... December 31, 1998 $ 167,979 $ 26,347 30,000 (4)
Executive Vice President, December 31, 1997 $ 152,981 $ 12,393 8,000 (5)
Sales and Marketing August 31, 1997 $ 152,981 $ 12,393 --
Jonathan Markiles..................... December 31, 1998 $ 111,497 -- 20,000 (6)
Executive Vice President, December 31, 1997 $ 82,897 -- 8,000 (5)
Strategic Planning and Business August 31, 1997 $ 82,897 -- --
Development, and Secretary
Francis Shinsato...................... December 31, 1998 $ 98,760 $ 2,096 30,000 (7)
Chief Financial Officer December 31, 1997 $ 11,874 -- 20,000 (5)
August 31, 1997 -- -- --
<FN>
- ----------------------
(1) The Company changed its fiscal year end from August 31 to December 31,
effective December 31, 1998.
(2) Consists of car and expense allowances and medical and disability
insurance.
(3) In October 1998, all of the Company's then outstanding stock options were
repriced under the Company's option repricing program. For a description of
the terms of the option repricing program, see "Report of the Compensation
Committee on Repricing of Stock Options" below.
(4) Consists of options to purchase 22,000 shares of Common Stock granted on
October 1998, and options to purchase 8,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
(5) These options were cancelled in October 1998 in connection with the grant
of a repriced option under the Company's option repricing program.
(6) Consists of options to purchase 12,000 shares of Common Stock granted on
October 1998, and options to purchase 8,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
(7) Consists of options to purchase 10,000 shares of Common Stock granted on
October 1998, and options to purchase 20,000 shares of Common Stock granted
in October 1997 which were repriced in October 1998 under the Company's
option repricing program.
</FN>
</TABLE>
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding the grant
of stock options made during the fiscal year ended December 31, 1998 to the
Named Executive Officers.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN
OPTION FISCAL EXERCISE OR EXPIRATION
NAME GRANTED YEAR(1) BASE PRICE(2) DATE
---- ------- ------- ------------- ----
<S> <C> <C> <C> <C>
Colin Dyne................................ 98,000(3) 31.2% $ 1.30 10/10/08
Harold Dyne............................... 98,000(3) 31.2% $ 1.30 10/10/08
Jonathan Burstein......................... 8,000(4) -- $ 1.30 10/3/07
22,000(3) 7.0% $ 1.30 10/10/08
Jonathan Markiles......................... 8,000(4) -- $ 1.30 10/3/07
12,000(3) 3.8% $ 1.30 10/10/08
Francis Shinsato.......................... 20,000(5) -- $ 1.30 10/3/07
10,000(3) 3.2% $ 1.30 10/10/08
<FN>
- ------------------------
(1) Options covering an aggregate of 301,000 shares of Common Stock were
granted to employees during the fiscal year ended December 31, 1998. In
October 1998, options covering an aggregate of 170,000 shares of Common
Stock that were granted to eligible persons before October 1998 were
repriced under the Company's option repricing program. The percentages are
based only on options to purchase 301,000 shares initially granted to
employees in fiscal 1998, and do not account for replacement options
granted in fiscal 1998 in connection with the Company's option repricing
program.
(2) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares, subject to certain conditions.
(3) This option vested immediately on the date of grant.
(4) This option consists of a repriced option granted in October 1998 under the
Company's option repricing program to replace an existing option to
purchase the same number of shares of Common Stock at a higher exercise
price granted in October 1997. This option vests and becomes exercisable as
follows: 25% vested on April 15, 1999, 25% vests on January 1, 2000, and
25% vests on each of October 3, 2001 and 2002.
(5) This option consists of a repriced option granted in October 1998 under the
Company's option repricing program to replace an existing option to
purchase the same number of shares of Common Stock at a higher exercise
price granted in October 1997. This option vested and became exercisable on
April 15, 1999.
</FN>
</TABLE>
7
<PAGE>
STOCK OPTIONS HELD AT FISCAL YEAR END
The following table sets forth, for those Named Executive Officers who
held stock options at fiscal year end, certain information regarding the number
of shares of Common Stock underlying stock options held at fiscal year end and
the value of options held at fiscal year end based upon the last reported sales
price of the Common Stock on the American Stock Exchange on December 31, 1998
($4.375 per share). No stock options were exercised by any Named Executive
Officer during fiscal 1998.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
<CAPTION>
NAME DECEMBER 31, 1998 DECEMBER 31, 1998 (1)
- ---- ----------------- ---------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Colin Dyne............................. 98,000 -0- $ 301,350 $ 0
Harold Dyne............................ 98,000 -0- $ 301,350 $ 25,000
Jonathan Burstein...................... 22,000 8,000 $ 67,650 $ 24,600
Jonathan Markiles...................... 12,000 8,000 $ 36,900 $ 24,600
Francis Shinsato....................... 10,000 20,000 $ 30,750 $ 61,500
<FN>
- ------------
(1) Based on a closing price of $4.375 per share of Common Stock on December
31, 1998, all options were in-the-money at fiscal year end.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
None of the Named Executive Officers have employment agreements with
the Company and their employment may be terminated at any time.
STOCK OPTION PLAN
The Company adopted the Tag-It Pacific, Inc. 1997 Stock Plan (the "1997
Plan") in October 1997. The purpose of the 1997 Plan is to attract, retain and
motivate certain key employees of the Company and its subsidiaries by giving
them incentives which are linked directly to increases in the value of the
Common Stock of the Company. Each director, officer, employee or consultant of
the Company or any of its subsidiaries is eligible to be considered for the
grant of awards under the 1997 Plan. The maximum number of shares of Common
Stock that may be issued pursuant to awards granted under the 1997 Plan is
562,500, subject to certain adjustments to prevent dilution. Any shares of
Common Stock subject to an award which for any reason expires or terminates
unexercised are again available for issuance under the 1997 Plan.
The 1997 Plan authorizes its administrator to enter into any type of
arrangement with an eligible participant that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the Common Stock, or (3) any other
security or benefit with a value derived from the value of the Common Stock. Any
stock option granted may be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or a
nonqualified stock option. The 1997 Plan currently is administered by the
Compensation Committee of the Board of Directors of the Company. Subject to the
provisions of the 1997 Plan, the Compensation Committee will have full and final
authority to select the executives and other employees to whom awards will be
granted thereunder, to grant the awards and to determine the terms and
conditions of the awards and the number of shares to be issued pursuant thereto.
No participant may receive awards representing more than 25% of the aggregate
number of shares of Common Stock that may be issued pursuant to all awards under
the 1997 Plan.
As of December 31, 1998, 500 shares of Common Stock remained available
for grant of awards to eligible participants under the 1997 Plan.
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REPORT OF THE COMPENSATION COMMITTEE ON REPRICING OF STOCK OPTIONS
During October 1998, the Compensation Committee of the Board of
Directors approved a stock option repricing program. Under the program, each
holder of stock options granted under the Company's 1997 Stock Plan before
October 10, 1998, including directors and Named Executive Officers, was entitled
to exchange their existing stock option for a repriced stock option to purchase
the same number of shares at an exercise price of $1.30 per share. The new
exercise price was lower than the exercise price under all of the existing stock
options and was higher than the then sales price of $1.1875 per share of Common
Stock. As a condition to receiving this more favorable exercise price, each
option holder who elected to participate in the program was required to agree to
a less favorable vesting schedule. With the exception of options held by the
Chief Financial Officer and one other employee, under the repriced options, any
shares of Common Stock which had already vested under the existing stock option
could not be exercised until April 15, 1999, and any shares under the existing
stock option which were scheduled to vest on October 3, 1999 do not vest under
the repriced option until January 1, 2000. Under the repriced options granted to
the Chief Financial Officer and one other employee, any shares of Common Stock
which had already vested under the existing stock option could not be exercised
until April 15, 1999, at which time the repriced option vested in full. Other
than the lower exercise price and the changes to the vesting schedule, each new
stock option issued under the repricing program has terms substantially
equivalent to the terms of the surrendered option, including the same number of
shares and expiration date. Options to purchase a total of 170,000 shares of
Common Stock were eligible to participate in the program, all of which were
exchanged by the holders thereof for repriced stock options.
The Compensation Committee approved the stock option repricing program
as a result of the significant reduction in the price of the Company's Common
Stock. The Committee determined that the Company's existing stock options no
longer provided meaningful incentive to the option holders to remain in the
employ of the Company and to maximize shareholder value. The existing stock
options had an exercise price of $3.20 per share, which exercise price exceeded
the trading price of the Company's Common Stock for a substantial majority of
the time from the effective date of the Company's initial public offering in
January 1998 until the date the option repricing program was approved. The
Committee determined that the exchange of new stock options with a lower
exercise price for the Company's existing stock options would once again provide
incentive to the Company's officers, directors and employees to continue to
provide services to the Company and to maximize shareholder value.
COMPENSATION COMMITTEE
Diana Maranon
Brent Cohen
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, requires the
Company's executive officers, directors, and persons who own more than ten
percent of a registered class of the Company's equity securities to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Executive officers, directors and greater-than-ten
percent stockholders are required by SEC regulations to furnish the Company with
all Section 16(a) forms they file. Based solely on its review of the copies of
the forms received by it and written representations from certain reporting
persons that they have complied with the relevant filing requirements, the
Company believes that, during the year ended December 31, 1998, all the
Company's executive officers, directors and greater-than-ten percent
stockholders complied with all Section 16(a) filing requirements with the
exception of Diana Maranon, Colin Dyne, Harold Dyne, Mark Dyne, Jonathan
Burstein and KG Investment, LLC. Ms. Maranon did not report her purchase in
January 1998 of 17,000 shares of Common Stock. Ms. Maranon reported her purchase
of these shares on a Form 5 filed in February 1999. Colin Dyne, Harold Dyne and
Mark Dyne each filed a Form 5 in February 1999 which overstated by 2,000 shares
the number of shares underlying stock options granted to each of these executive
officers in October 1998. Jonathan Burstein filed a Form 5 in February 1999
which overstated by 5,000 shares the number of shares underlying stock options
granted to Mr. Burstein in October 1998. KG Investment, LLC did not report on
a Form 3 its acquisition in October 1998 of 2,390,000 shares of Common Stock,
which represents more than ten percent of the Company's Common Stock.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
D.P.S. Associates, a general partnership in which Harold Dyne is a
general partner, is the lessor of the Company's executive offices located at
3820 South Hill Street in Los Angeles, California pursuant to a Lease Agreement
with Pacific Trim & Belt, Inc., a subsidiary of the Company. Harold Dyne is the
President and a director of the Company and the Chief Executive Officer of
Pacific Trim. The lease with D.P.S. Associates provides for a base rent of
$9,072 per month and expires on April 30, 2000.
Certain affiliated parties have made loans to the Company's
subsidiaries to be used for general working capital purposes, all of which are
evidenced by promissory notes executed by the respective subsidiary and are due
and payable on the fifteenth day following the date written demand for payment
is made by the holder thereof. The loans include (i) a loan by Harold Dyne in
June 1991 of $10,000 to Tag-It, Inc. at an interest rate of 10.0% per annum,
(ii) a loan by Mark Dyne in January 1997 of $15,000 to Tag-It, Inc. at an
interest rate of 7.5% per annum, (iii) a loan by Monto Holdings Pty. Ltd. in
February 1996 of $300,000 to AGS Stationery, Inc. at an interest rate of 7.5%
per annum, which loan was repaid in January 1998, (iv) a loan by Monto Holdings
in January 1995 of $124,626 to Pacific Trim at an interest rate of 10.0% per
annum, (v) a loan by NPM Investments, Inc. in August 1996 of $715,000 to Tag-It,
Inc. at an interest rate of 7.5% per annum, which loan is secured by all of the
assets of Tag-It, Inc., (vi) a loan by Pacific Western, Inc. in May 1996 of
$16,000 to Tag-It, Inc. at an interest rate of 7.5% per annum, $13,500 of which
was repaid as of December 31, 1998, and (vii) a loan by Pacific Western, Inc. in
June 1996 of $6,000 to Pacific Trim at an interest rate of 7.5% per annum, which
loan was repaid in fiscal 1997. Mark Dyne, the Chairman of the Board of the
Company holds a significant equity interest in Monto Holdings, NPM Investments,
Inc. and Pacific Western, Inc. Alan Saloner, a significant stockholder of the
Company, holds a significant equity interest in NPM Investments, Inc.
In August 1996, NPM Investments, Inc. made an additional loan of
$875,000 to Tag-It, Inc., without interest, pursuant to a convertible secured
promissory note which was secured by all of the assets of Tag-It, Inc. Mark Dyne
and Alan Saloner hold significant equity interests in NPM Investments, Inc. The
proceeds of the loan were used for working capital purposes. In October 1997,
the note was converted by NPM Investments, Inc. into shares of common stock of
Tag-It, Inc., Tag-It Printing & Packaging Ltd. and AGS Stationery, which shares
were exchanged for an aggregate of 384,402 shares of Common Stock of the Company
in January 1998.
In September and October 1997, NPM Investments, Inc. made an additional
loan of $126,972 to Tag-It, Inc. to fund expenses incurred in connection with
the Company's initial public offering. The loan, which was repaid in July 1998,
had an interest rate of 7.5% per annum and was due and payable on the fifteenth
day following the date of delivery by NPM Investments, Inc. of written demand
therefor.
Effective October 15, 1998, $400,000 of indebtedness owed by the
Company's subsidiaries to NPM Investments, Inc. was converted into 266,666
shares of Common Stock, which shares were issued to Heathmount International
Limited, a company in which Alan Saloner holds an equity interest. Mark Dyne did
not receive any interest, directly or indirectly, in the shares issued to
Heathmount International Limited upon conversion of the indebtedness owed to NPM
Investments, Inc.
In September 1996, Harold Dyne borrowed $100,000 from Mercantile
National Bank, which loan was guaranteed by Tag-It, Inc. In September 1996, the
$100,000 borrowed by Mr. Dyne was lent to Tag-It, Inc. for working capital
purposes at the same interest rate payable on Mr. Dyne's loan from Mercantile
National Bank. The loan from Mr. Dyne to Tag-It, Inc. was due and payable on the
fifteenth day following the date written demand for payment was made by Mr. Dyne
at any time after December 31, 1998. The loan was repaid in July 1998.
In October and November 1997, Monto Holdings made additional loans of
$12,000 to AGS Stationery and $110,000 to Pacific Trim, respectively, to fund
expenses incurred in connection with the Company's initial public offering. The
loans bear simple interest at a rate of 7.5% per annum, are due and payable on
the fifteenth day following the date of delivery by Monto Holdings of written
demand therefor.
As of December 31, 1998, Harold Dyne was indebted to Pacific Trim in
the aggregate amount of $28,500. This indebtedness is evidenced by a promissory
note dated August 31, 1997 in the principal amount of
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$19,649, which currently does not bear interest, and a promissory note dated
October 15, 1997 in the principal amount of $3,000, which bears interest at a
rate of 7.5% per annum and was due and payable on December 31, 1998.
As of December 31, 1998, Colin Dyne was indebted to Tag-It in the
aggregate amount of $136,030. This indebtedness is evidenced by a promissory
note dated August 31, 1997 in the principal amount of $71,542, which is due and
payable in four installments of $17,886 on June 30, 1998, December 31, 1998,
June 30, 1999 and December 31, 1999, and a promissory note dated October 15,
1997 in the principal amount of $6,089, which was due and payable on December
31, 1998. Both promissory notes bear interest at a rate of 7.5% per annum.
In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. Alan Saloner, a significant
stockholder of the Company, is an officer and director of Safcor. Pursuant to
the Safcor Agreement, AGS Stationery had agreed to sell to Safcor all accounts
relating to the sale of goods or the rendering of services by AGS Stationery for
a purchase price equal to the gross amount of each account, less all discounts
and credits and a factoring commission of 1.5% of the net amount of the account.
In addition, Safcor had the right, in its sole discretion, to provide customers
of AGS Stationery with credit lines for the purchase of AGS Stationery's
products. The agreement was terminated in April 1998. During fiscal 1998,
receivables advanced by AGS Stationery to Safcor totaled $65,271. These
receivables were returned by Safcor to AGS Stationery upon termination of the
Safcor Agreement in April 1998.
In 1994, Jonathan Markiles, as compensation for employment services,
received warrants to purchase 14 shares of common stock of Tag-It, Inc., which
warrants became exercisable for 39,235 shares of Common Stock of the Company at
a price of $.7136 per share immediately prior to the Company's initial public
offering. In the event the shares of Common Stock underlying the warrants are
not freely tradable under the Securities Act of 1933, as amended, the Company
has agreed to register these shares on Form S-3 or Form S-8. The warrants
provide for piggyback registration rights and expire on December 31, 2002.
Averil Capital Markets Group, Inc., a financial advisory firm founded
and controlled by Diana Maranon, has, since January 1, 1996, performed various
services for AGS Stationery and the Company including investigation of strategic
financing and other corporate growth initiatives. Ms. Maranon is a director of
the Company. As consideration for such services, AGS Stationery paid to Averil
the aggregate amount of $26,123, including out of pocket expenses. As additional
compensation for services rendered, AGS Stationery granted to Chloe Holdings,
Inc., an affiliate of Averil warrants to purchase up to 135 shares of common
stock of AGS Stationery, and the Company paid to Averil $175,000 upon
consummation of the Company's initial public offering. Immediately prior to the
Company's initial public offering, the warrants granted to Chloe Holdings became
exercisable for 22,841 shares of Common Stock of the Company. The warrants are
currently exercisable. In the event the shares of Common Stock underlying the
warrants are not freely tradable under the Securities Act of 1933, as amended,
the Company has agreed to register these shares on Form S-3. The Company plans
to continue to engage Averil; however, the Company is unable to currently
estimate the extent to which it will use Averil in the future.
In October 1998, KG Investment, LLC, a Los Angeles-based private
investment company, purchased 2,390,000 restricted shares of the Company's
Common Stock for an aggregate price of $2,688,750. KG Investment is owned by
Gerard Guez and Todd Kay. Mr. Guez is the Chairman of the Board and Chief
Executive Officer and a significant stockholder of Tarrant Apparel Group. Mr.
Kay is the President and a significant stockholder of Tarrant Apparel Group.
Tarrant Apparel Group is a customer of the Company. During fiscal 1998, Tarrant
Apparel Group purchased an aggregate of $569,000 in products from the Company.
In connection with its investment in the Company, KG Investment agreed
not to dispose of its shares of Common Stock prior to October 16, 2000, except
to certain affiliated parties, without the prior written consent of the Company.
After October 16, 2000, KG Investment may sell or transfer any of the shares in
accordance with applicable law; provided that if the sale is made other than (i)
in accordance with the volume restrictions of Rule 144 under the Securities Act
of 1933 or (ii) in connection with a public offering initiated by the Company,
then the Company shall have a right of first refusal to purchase the shares
(which right may be assigned by the Company) upon the same or economically
equivalent terms and conditions. The Company granted KG Investment piggyback
registration rights which entitles it to sell its shares of Common Stock in a
registered public offering in
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the same proportion as shares of Common Stock sold in the same offering by any
of Colin Dyne, Mark Dyne, Harold Dyne, Larry Dyne and/or Jonathan Burstein (the
"Dyne Shareholders").
KG Investment has agreed to certain restrictions on the voting of the
shares it purchased until after October 16, 2000. KG Investment has agreed not
to vote in favor of any merger, asset sale or other extraordinary transaction
involving the Company, if such transaction is not approved by the majority of
the Company's Board of Directors; provided, however, in the event that the price
to be paid per share of Common Stock pursuant to such transaction is at least
$8.00, KG Investment is not prohibited from voting in favor of the transaction.
In addition, so long as the Dyne Shareholders hold more than 1,000,000 shares of
Common Stock, KG Investment has agreed to vote 386,778 of its shares of Common
Stock (as the same are adjusted for stock splits, stock dividends and other
similar transactions) (the "Neutral Shares") in the same proportion as all other
outstanding shares of Common Stock are voted on all matters presented to the
Company's stockholders. The number of Neutral Shares will be reduced share by
share by any shares of Common Stock purchased from the Company by the Dyne
Shareholders. KG Investment has the right to vote its shares, other than the
Neutral Shares, in accordance with its own objectives; provided, that KG
Investment has agreed that neither KG Investment, nor an entity affiliated with
or controlled by KG Investment, will solicit proxies against, or promote or
initiate, or encourage another party to promote or initiate, a proxy
solicitation or vote contest in opposition to, the management or the Board of
Directors of the Company. Furthermore, KG Investment has agreed that until after
the 2000 Annual Meeting of Stockholders of the Company, it will not nominate, or
cause to be nominated, any directors for election at any annual meeting, and to
vote its shares of Common Stock in the same proportion as all other outstanding
shares of Common Stock voted with respect to the election of directors of the
Company. Finally, KG Investment has agreed to vote its shares of Common Stock to
approve any amendment increasing the number of shares of Common Stock reserved
for issuance under the Company's 1997 Stock Plan, up to a maximum of 900,000
shares.
Murray Markiles, who is Jonathan Markiles's brother and Paul Markiles'
son, is a partner with Troop Steuber Pasich Reddick & Tobey, LLP ("TSPRT").
TSPRT is legal counsel to Company. As compensation for legal services performed
by TSPRT in connection with the Company initial public offering, the Company
granted to TSPRT a warrant to purchase 35,555 shares of Common Stock at an
exercise price of $3.60 per share. In October 1998, the Company repriced the
warrants issued to TSPRT from $3.60 per share to $1.50 per share. The warrant is
currently exercisable, expires on December 31, 2003 and provides for piggyback
registration rights.
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PROPOSAL TO AMEND THE 1997 STOCK PLAN
GENERAL
The Board of Directors has approved an amendment (the "Plan Amendment")
to the Tag-It Pacific, Inc. 1997 Stock Plan to increase the number of shares of
Common Stock available for issuance under the 1997 Plan from 562,500 shares to
1,177,500 shares. The Plan Amendment is being submitted to the Company's
stockholders for approval.
The Board of Directors approved the Plan Amendment to ensure that a
sufficient number of shares of Common Stock are available for issuance under the
1997 Plan. At April 15, 1999, only 500 shares remained available for grants of
awards under the 1997 Plan. The Board of Directors believes that the ability to
grant stock-based awards is important to the future success of the Company. The
grant of stock options and other stock-based awards can motivate high levels of
performance and provide an effective means of recognizing employee contributions
to the success of the Company. In addition, stock-based compensation can be
valuable in recruiting and retaining highly qualified technical and other key
personnel who are in great demand as well as rewarding and providing incentives
to its current employees. The increase in the number of shares available for
awards under the 1997 Plan will enable the Company to continue to realize the
benefits of granting stock-based compensation.
At April 15, 1999, the last reported sales price of the Common Stock on
the American Stock Exchange was $6.1875 per share.
SUMMARY OF THE 1997 PLAN
PURPOSE. The purpose of the 1997 Plan is to advance the interests of
the Company and its stockholders by strengthening the Company's ability to
obtain and retain the services of the types of employees, consultants, officers
and directors who will contribute to the Company's long term success and to
provide incentives which are linked directly to increases in stock value which
will inure to the benefit of all stockholders of the Company.
ADMINISTRATION. The 1997 Plan may be administered by the Board of
Directors, or a committee of two or more directors appointed by the Board of
Directors whose members serve at the pleasure of the Board. The 1997 Plan
currently is administered by the Compensation Committee of the Board of
Directors. The party administering the 1997 Plan is referred to as the
"Administrator." Subject to the provisions of the 1997 Plan, the Administrator
has full and final authority to (i) select from among eligible directors,
officers, employees and consultants, those persons to be granted awards under
the 1997 Plan, (ii) determine the type, size and terms of individual awards to
be made to each person selected, (iii) determine the time when awards will be
granted and to establish objectives and conditions (including, without
limitation, vesting and performance conditions), if any, for earning awards,
(iv) amend the terms or conditions of any outstanding award, subject to
applicable legal restrictions and to the consent of the other party to such
award, (v) authorize any person to execute, on behalf of the Company, any
instrument required to carry out the purposes of the 1997 Plan, and (vii) make
any and all other determinations which the Administrator determines to be
necessary or advisable in the administration of the 1997 Plan. The Administrator
has full power and authority to administer and interpret the 1997 Plan and to
adopt, amend and revoke such rules, regulations, agreements, guidelines and
instruments for the administration of the 1997 Plan and for the conduct of its
business as the Administrator deems necessary or advisable.
ELIGIBILITY. Any person who is a director, officer, employee or
consultant of the Company, or any of its subsidiaries (a "Participant"), is
eligible to be considered for the grant of awards under the 1997 Plan. No
Participant may receive awards representing more than 25% of the aggregate
number of shares of Common Stock that may be issued pursuant to all awards under
the 1997 Plan. At April 1, 1999, approximately 96 officers, directors and
employees of the Company were eligible to receive awards under the 1997 Plan.
TYPES OF AWARDS. Awards authorized under the 1997 Plan may consist of
any type of arrangement with a Participant that, by its terms, involves or might
involve or be made with reference to the issuance of shares of the Company's
Common Stock, or a derivative security with an exercise or conversion price
related to the Common
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Stock or with a value derived from the value of the Common Stock. Awards are not
restricted to any specified form or structure and may include sales, bonuses and
other transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock or securities convertible
into or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of award
which the Administrator shall determine is consistent with the objectives and
limitations of the 1997 Plan. An award may consist of one such security or
benefit, or two or more of them in tandem or in the alternative.
CONSIDERATION. The Common Stock or other property underlying an award
may be issued for any lawful consideration as determined by the Administrator,
including, without limitation, a cash payment, services rendered, or the
cancellation of indebtedness. An award may provide for a purchase price of the
Common Stock or other property at a value less than the fair market value of the
Common Stock or other property on the date of grant. In addition, an award may
permit the recipient to pay the purchase price of the Common Stock or other
property or to pay such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by delivering previously owned shares of
capital stock of the Company or other property, or by reducing the number of
shares of Common Stock or the amount of other property otherwise issuable
pursuant to such award.
TERMINATION OF AWARDS. All awards granted under the 1997 Plan expire
ten years from the date of grant, or such shorter period as is determined by the
Administrator. No option is exercisable by any person after such expiration. If
an award expires, terminates or is canceled, the shares of Common Stock not
purchased thereunder shall again be available for issuance under the 1997 Plan.
AMENDMENT AND TERMINATION OF THE 1997 PLAN. The Administrator may amend
the 1997 Plan at any time, may suspend it from time to time or may terminate it
without approval of the stockholders; provided, however, that stockholder
approval is required for any amendment which materially increases the number of
shares for which awards may be granted, materially modifies the requirements of
eligibility, or materially increases the benefits which may accrue to recipients
of awards under the 1997 Plan. However, no such action by the Board of Directors
or stockholders may unilaterally alter or impair any award previously granted
under the 1997 Plan without the consent of the recipient of the award. In any
event, the 1997 Plan shall terminate on October 1, 2007 (ten years following the
date it was approved by the Company's stockholders) unless sooner terminated by
action of the Board of Directors.
FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
As of April 1, 1999, the only type of award granted by the Company
under the 1997 Plan had been stock options. The following is a general
discussion of the principal United States federal income tax consequences of
both "incentive stock options" within the meaning of Section 422 of the Code
("Incentive Stock Options") and non-statutory stock options ("Non-statutory
Stock Options") based upon the United States Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder, all of which are
subject to modification at any time. The 1997 Plan does not constitute a
qualified retirement plan under Section 401(a) of the Code (which generally
covers trusts forming part of a stock bonus, pension or profit-sharing plan
funded by employer and/or employee contributions which are designed to provide
retirement benefits to participants under certain circumstances) and is not
subject to the Employee Retirement Income Security Act of 1974 (the pension
reform law which regulates most types of privately funded pension, profit
sharing and other employee benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is
recognized for federal income tax purposes by an optionee at the time an
Incentive Stock Option is granted, and, except as discussed below, no income is
recognized by an optionee upon his or her exercise of an Incentive Stock Option.
If the optionee makes no disposition of the Common Stock received upon exercise
within two years from the date such option was granted or one year from the date
such option is exercised (the "ISO Holding Period Requirements"), the optionee
will recognize long-term capital gain or loss when he or she disposes of his or
her Common Stock. Such gain or loss generally will be measured by the difference
between the exercise price of the option and the amount received for the Common
Stock at the time of disposition.
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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.
REQUIRED VOTE
The approval of the Plan Amendment requires the affirmative vote of a
majority of the votes entitled to be cast by the holders of shares of the
Company's Common Stock present or represented and entitled to vote on this
matter at the Annual Meeting. An abstention will be counted toward the
tabulation of votes cast and will have the same effect as a vote against the
proposal. A broker non-vote, however, will not be treated as a vote cast for or
against approval of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE APPROVAL OF THE PLAN AMENDMENT.
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PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION
OF THE COMPANY TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK
THE AMENDMENT
In April 1999, the Board of Directors adopted resolutions approving and
recommending that the stockholders adopt an amendment to Article IV of the
Company's Certificate of Incorporation to increase the authorized Common Stock
from 15,000,000 shares to 30,000,000 shares. The relative rights and limitations
of the Common Stock would remain unchanged under the amendment. The Common Stock
does not have preemptive rights.
The Company's Certificate of Incorporation presently authorizes the
issuance of 15,000,000 shares of Common stock and 3,000,000 shares of Preferred
Stock, each having a par value of $.001 per share. Of the 15,000,000 presently
authorized shares of Common Stock, 6,726,677 shares were issued and outstanding
on May 7, 1999, the record date. Of the 3,000,000 shares of presently authorized
Preferred Stock, 250,000 shares have been designated Series A Preferred Stock
and have been reserved for issuance in connection with the Company's
stockholders' rights plan. No shares of Series A Preferred Stock were issued or
outstanding as of the record date. In addition, an aggregate of 848,631 shares
of Common Stock have been reserved for issuance as of the record date under the
Company's 1997 Stock Plan, warrants and other rights to purchase Common Stock of
the Company. Accordingly, only 7,424,692 shares of Common Stock remain available
for other corporate purposes.
The Board of Directors believes that the proposed increase in the
authorized shares of Common Stock is in the best interests of the Company and
its stockholders and believes that it is advisable to authorize such additional
shares and have them available in connection with the possible future
transactions, such as financings, strategic alliances, corporate mergers,
acquisitions, possible funding of new product programs or businesses and other
uses not presently determinable and as may be deemed to be feasible and in the
best interests of the Company. In addition, the Board of Directors believes that
it is desirable that the Company have the flexibility to issue shares of Common
Stock without further stockholder action, except as otherwise provided by law.
If the proposal is adopted, the amended portion of Article IV of the
Certificate of Incorporation will read as follows:
IV.
This Corporation is authorized to issue two classes of shares,
designated, respectively, "Preferred Stock" and "Common Stock." Each
class of stock shall have a par value of $.001 per share. The number of
shares of Preferred Stock authorized to be issued is 3,000,000 and the
number of shares of Common Stock authorized to be issued is 30,000,000.
The only change in Article IV which will be effected if the proposal is
approved is the change to the one number set forth in bold face type above.
Presently, Article IV provides that the shares of Common Stock which the Company
may issue is 15,000,000. All other provisions of Article IV will remain
unchanged.
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
The Board of Directors believes that approval of the proposal is
essential for the growth and development of the Company. However, the following
should be considered by a stockholder in deciding how to vote upon this
proposal.
The additional shares of Common Stock which the Board of Directors
would be authorized to issue upon approval of the proposal, if so issued, could
have an anti-takeover effect. Additional shares of Common Stock could be issued
(within the limits imposed by applicable law) in one or more transactions that
could make a change in control or takeover of the Company more difficult. For
example, the Company could issue additional
16
<PAGE>
shares for the purpose of diluting the stock ownership or voting rights of
persons seeking to obtain control of the Company.
The issuance of additional shares of Common Stock would have a dilutive
effect upon the percentage of equity of the Company owned by present
stockholders. The issuance of such additional shares might be disadvantageous to
current stockholders in that any additional issuances would potentially reduce
per share dividends, if any. Stockholders should consider, however, that the
possible impact upon dividends is likely to be minimal in view of the fact that
the Company has never paid dividends, has never adopted any policy with respect
to the payment of dividends and does not intend to pay any cash dividends in the
foreseeable future. The Company instead intends to retain earnings, if any, for
use in financing growth and additional business opportunities.
The proposal is not the result of the Board of Directors' knowledge of
any specific effort to accumulate the Company's securities or to obtain control
of the Company by means of a merger, tender offer, proxy solicitation in
opposition to management or otherwise. The Company is not submitting the
proposal to enable it to frustrate any efforts by another party to acquire a
controlling interest or to seek representation on the Board of Directors. The
submission of the proposal is not a part of any plan by management to adopt a
series of amendments to the Certificate of Incorporation or Bylaws so as to
render the takeover of the Company more difficult.
REQUIRED VOTE
The Board has unanimously approved the amendment of the Certificate of
Incorporation to increase the authorized number of shares of Common Stock. The
approval of the amendment of the Certificate of Incorporation requires the
affirmative vote of a majority of the votes entitled to be cast by the holders
of all of the outstanding shares of the Company's Common Stock. An abstention
will be counted toward the tabulation of votes cast and will have the same
effect as a vote against the proposal. A broker non-vote, however, will not be
treated as a vote cast for or against approval of the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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<PAGE>
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 15, 1999 certain information
relating to the ownership of the Common Stock by (i) each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all of the Company's
executive officers and directors as a group. Except as may be indicated in the
footnotes to the table and subject to applicable community property laws, each
such person has the sole voting and investment power with respect to the shares
owned. The address of each person listed is in care of the Company, 3820 South
Hill Street, Los Angeles, California 90037, unless otherwise set forth below
such person's name.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED(1) PERCENT(1)
---------------- --------------------- ----------
<S> <C> <C>
KG Investments, LLC ................. 2,390,000 35.5 %
3151 East Washington Blvd.
Los Angeles, CA 90023 ............
Harold Dyne (2)...................... 757,507 11.1
Colin Dyne (3)....................... 682,541 10.0
Mark Dyne (4)........................ 539,401 7.9
Alan Saloner (5)..................... 426,834 6.3
Jonathan Burstein (6)................ 119,788 1.8
Jonathan Markiles (7)................ 67,248 1.0
Diana Maranon (8).................... 64,841 1.0
Francis Shinsato (11)................ 30,000 *
Brent Cohen (9)...................... 20,000 *
Michael Katz (10).................... 15,000 *
Paul Markiles (10)................... 15,000 *
Directors and executive officers 2,311,326 32.1 %
as a group (10 persons) (12)......
<FN>
- ------------------------------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned by
more than one person (if, for example, persons share the power to vote or
the power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire the
shares (for example, upon exercise of an option) within 60 days of the
date as of which the information is provided. In computing the percentage
ownership of any person, the amount of shares outstanding is deemed to
include the amount of shares beneficially owned by such person (and only
such person) by reason of these acquisition rights. As a result, the
percentage of outstanding shares of any person as shown in this table does
not necessarily reflect the person's actual ownership or voting power with
respect to the number of shares of Common Stock actually outstanding at
April 15, 1999.
(2) Consists of (i) 659,507 shares of Common Stock held by H&A Dyne Holdings,
LP, and (ii) 98,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable. Harold Dyne is
the President and principal stockholder of Dyne Equities Corp., which is
the general partner of H&A Dyne Holdings, LP.
(3) Includes 98,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
18
<PAGE>
(4) Includes 78,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(5) Consists of (i) 160,168 shares of Common Stock held by Saloner Family
Investments Limited Partnership, and, (ii) 266,666 shares of Common Stock
held by Heathmount International Limited. The Company believes that Alan
Saloner is a principal executive officer and shareholder of Safcor, Inc.,
which is the general partner of Saloner Family Investments Limited
Partnership, and that Mr. Saloner is a principal executive officer and
shareholder of Heathmount International Limited.
(6) Includes 24,000 shares of Common Stock reserved for issuance upon exercise
of stock options which currently are exercisable.
(7) Includes (i) 14,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 39,235
shares of Common Stock reserved for issuance upon exercise of warrants
which currently are exercisable.
(8) Includes (i) 25,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 22,841
shares of Common Stock reserved for issuance upon exercise of warrants
which currently are exercisable.
(9) Consists of 20,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(10) Consists of 15,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(11) Consists of 30,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable.
(12) Includes (i) 417,000 shares of Common Stock reserved for issuance upon
exercise of stock options which currently are exercisable, and (ii) 62,076
shares of Common Stock underlying warrants which currently are
exercisable.
</FN>
</TABLE>
19
<PAGE>
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the next Annual
Meeting of Stockholders, for inclusion in the Company's Proxy Statement and
Proxy form relating to such Annual Meeting, must submit that proposal to the
Company at its principal executive offices by January 18, 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP, independent public accountants, were selected by the
Board of Directors to serve as independent public accountants of the Company for
the year ended December 31, 1998 and have been selected by the Board of
Directors to serve as independent auditors for the fiscal year ending December
31, 1999. Representatives of BDO Seidman LLP are expected to be present at the
Annual Meeting, and will be afforded the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions from
stockholders.
SOLICITATION OF PROXIES
It is expected that the solicitation of proxies will be primarily by
mail. The cost of solicitation by management will be borne by the Company. The
Company will reimburse brokerage firms and other persons representing beneficial
owners of shares for their reasonable disbursements in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors and officers, without additional compensation,
personally or by mail, telephone, telegram or otherwise for the purpose of
soliciting such proxies.
ANNUAL REPORT ON FORM 10-KSB
THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB, WHICH HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1998,
WILL BE MADE AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO
FRANCIS SHINSATO, CHIEF FINANCIAL OFFICER, TAG-IT PACIFIC, INC., 3820 SOUTH HILL
STREET, LOS ANGELES, CALIFORNIA 90037.
ON BEHALF OF THE BOARD OF DIRECTORS
Francis Shinsato
CHIEF FINANCIAL OFFICER
Los Angeles, California
May 21, 1999
20
<PAGE>
TAG-IT PACIFIC, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned, a stockholder of TAG-IT PACIFIC, INC., a Delaware
corporation (the "Company"), hereby appoints COLIN DYNE and FRANCIS SHINSATO,
and each of them, the proxy of the undersigned, with full power of substitution,
to attend, vote and act for the undersigned at the Company's Annual Meeting of
Stockholders (the "Annual Meeting"), to be held on June 16, 1999, and at any of
its postponements or adjournments, and in connection herewith, to vote and
represent all of the shares of the Company which the undersigned would be
entitled to vote, as follows:
The Board of Directors recommends a WITH vote on Proposal 1 and Proposal
2 and a FOR vote on Proposal 3 and Proposal 4.
1. ELECTION OF CLASS I DIRECTORS, as provided in the Company's Proxy
Statement:
___ WITH ___ WITHOUT Authority to vote for the nominees listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A NOMINEE, LINE THROUGH
OR OTHERWISE STRIKE OUT THE NAME OF THE NOMINEE BELOW)
Brent Cohen Diana Maranon
2. ELECTION OF CLASS II DIRECTORS, as provided in the Company's Proxy
Statement:
___ WITH ___ WITHOUT Authority to vote for the nominees listed below.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR A NOMINEE, LINE THROUGH OR
OTHERWISE STRIKE OUT THE NAME OF THE NOMINEE BELOW)
Harold Dyne Michael Katz Paul Markiles
3. The approval of the amendment to the Company's 1997 Stock Plan to
increase the maximum number of shares of Common Stock that may be
issued pursuant to awards granted under the plan.
FOR ____ AGAINST ____ ABSTAIN ____
4. The approval of the amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of Common
Stock.
FOR ____ AGAINST ____ ABSTAIN ____
The undersigned hereby revokes any other proxy to vote at the Annual
Meeting, and hereby ratifies and confirms all that the proxy holders may
lawfully do by virtue of this Proxy. AS TO ANY OTHER BUSINESS THAT MAY PROPERLY
COME BEFORE THE ANNUAL MEETING AND ANY OF ITS POSTPONEMENTS OR ADJOURNMENTS, THE
PROXY HOLDER IS AUTHORIZED TO VOTE IN ACCORDANCE WITH HIS BEST JUDGMENT.
This Proxy will be voted in accordance with the instructions set forth
above. THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR THE
ELECTION OF THE CLASS I AND CLASS II DIRECTORS NAMED, THE APPROVAL OF THE
AMENDMENT TO THE COMPANY'S 1997 STOCK PLAN, THE APPROVAL OF THE AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION AND AS THE PROXY HOLDER SHALL DEEM
ADVISABLE ON ANY OTHER BUSINESS THAT MAY COME BEFORE THE ANNUAL MEETING, UNLESS
OTHERWISE DIRECTED.
<PAGE>
The undersigned acknowledges receipt of a copy of the Notice of Annual
Meeting and accompanying Proxy Statement dated May 21, 1999 relating to the
Annual Meeting.
Date: ____________________________, 1999
---------------------------------------
---------------------------------------
Signature(s) of Stockholder(s)
(See Instructions Below)
The above signature(s) should
correspond exactly with the name(s)
of the Stockholder(s) appearing on
the Stock Certificate. If stock is
jointly held, all joint owners should
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such. If signer is a corporation,
please sign the full corporation
name, and give title of signing
officer.
THIS PROXY IS SOLICITED BY THE BOARD
OF DIRECTORS OF TAG-IT PACIFIC, INC.
