SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
================================================================================
(2) Aggregate number of securities to which transactions applies:
================================================================================
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
================================================================================
(4) Proposed maximum aggregate value of transaction:
================================================================================
[_] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date Filed:
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TAG-IT PACIFIC, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TIME..................... 9:00 a.m. Pacific Daylight Savings Time on
July 31, 2007
PLACE.................... Hilton Hotel
6360 Canoga Avenue
Woodland Hills, California 91367
ITEMS OF BUSINESS........ (1) To elect three Class I members of
the Board of Directors for
three-year terms. The persons
nominated by our Board of Directors
(Joseph Miller, Brent Cohn and
William Sweedler) are described in
the accompanying Proxy Statement;
(2) To approve the Company's 2007 Stock
Plan, which authorizes the issuance
of up to 2,600,000 shares of the
Company's common stock pursuant to
awards granted under the plan; and
(3) To transact such other business as
may properly come before the Annual
Meeting and any adjournment or
postponement.
RECORD DATE.............. You can vote if you were a stockholder of
the Company at the close of business on June
4, 2007.
PROXY VOTING............. All stockholders are cordially invited to
attend the Annual Meeting in person.
However, to ensure your representation at
the Annual Meeting, you are urged to vote
promptly by signing and returning the
enclosed Proxy card. IF YOUR SHARES ARE HELD
IN STREET NAME, YOU MUST OBTAIN A PROXY,
EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF
RECORD IN ORDER TO BE ABLE TO VOTE AT THE
ANNUAL MEETING.
Woodland Hills, California /s/ Lonnie D. Schnell
June 5, 2007 -----------------------------
Lonnie D. Schnell
CHIEF FINANCIAL OFFICER
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE AS
PROMPTLY AS POSSIBLE. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN
SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH CARD SHOULD
BE COMPLETED AND RETURNED.
TAG-IT PACIFIC, INC.
21900 BURBANK BOULEVARD, SUITE 270
WOODLAND HILLS, CALIFORNIA 91367
PROXY STATEMENT
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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 2007
Annual Meeting of stockholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of stockholders on July
31, 2007, 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 4, 2007
are entitled to receive this notice and to vote their shares at the Annual
Meeting. As of June 5, 2007, there were 18,541,433 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 15, 2007.
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 approval of our 2007 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.
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ELECTION OF DIRECTORS.
The three nominees for Class I director receiving the highest number of
votes at the Annual Meeting will be elected. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
will be voted for such other nominee(s) as shall be designated by the current
Board of Directors to fill any vacancy. We have no reason to believe that any
nominee will be unable or unwilling to serve if elected as a director.
ADOPTION OF THE 2007 STOCK PLAN.
The approval of the 2007 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 2007 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 stockholder proposal was not submitted to us 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 stockholder proposal has been submitted, 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.
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ITEM 1: ELECTION OF DIRECTORS
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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 I directors whose terms expire at the 2007 Annual Meeting are
Joseph Miller, Brent Cohen and William Sweedler. The Class II directors are
serving terms that expire in 2008, and the Class III directors are serving terms
that expire in 2009. Three Class I directors will be elected at the Annual
Meeting.
Unless otherwise instructed, the Proxy holders will vote the Proxies
received by them for the nominees named below. If any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the Proxies
will be voted for such other nominee(s) as shall be designated by the then
current Board of Directors to fill any vacancy. We have no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees
as Class I directors:
Joseph Miller
Brent Cohen
William Sweedler
If elected, Joseph Miller, Brent Cohen and William Sweedler are
expected to serve until the 2010 Annual Meeting of stockholders. The three
nominees for election as Class I directors at the Annual Meeting who receive the
highest number of affirmative votes will be elected.
The principal occupation and certain other information about the
nominees, other directors whose terms of office continue after the Annual
Meeting, and certain executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
3
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of
our executive officers and directors as of June 1, 2007.
NAME AGE POSITION
---------------------------- --- ---------------------------------------
Stephen P. Forte............ 40 Chief Executive Officer and Director
Mark Dyne (1).............. 46 Chairman of the Board of Directors
Colin Dyne (1).............. 44 Vice Chairman of the Board of Directors
Jonathan Burstein (2)....... 40 Director
Brent Cohen................. 48 Director
Joseph Miller............... 43 Director
Raymond Musci .............. 46 Director
William Sweedler............ 40 Director
Susan White................. 58 Director
Lonnie D. Schnell........... 58 Chief Financial Officer
Wouter van Biene............ 58 Chief Operating Officer
(1) Colin Dyne and Mark Dyne are brothers.
(2) Jonathan Burstein is Colin Dyne's and Mark Dyne's
brother-in-law.
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CLASS I DIRECTORS: TERMS EXPIRING IN 2007
JOSEPH MILLER 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
BRENT COHEN 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) from June 2003 to
2005. Mr. Cohen served as Chairman of the Board,
President and Chief Executive Officer of US Search
from February 2000 until June 2003. Mr. Cohen
previously 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
WILLIAM SWEEDLER Mr. Sweedler has served on the Board of Directors
since 2006. He is Chairman & CEO of Windsong
Allegiance Group, a diversified brand management and
operating company that specializes in the
acquisition, development, licensing, and
comprehensive creative management of consumer branded
intellectual property. The company owns and licenses
the brands, Como Sport, Calvin Klein Golf, Joseph
Abboud Golf, and PRX. Mr. Sweedler previously served
as President & CEO of Joe Boxer, a wholly owned
division of the Iconix Brand Group (NASDAQ: ICON) of
which he was Executive Vice President and member of
the Board of Directors during 2005 to June 2006.
Prior to Mr. Sweedler joining Iconix Brand Group, he
was CEO & President of Windsong Allegiance Apparel
Group from 2001 to 2005. The company owned, managed,
and licensed the brands Joe Boxer, Hathaway, New
Frontier, Pivot Rules, Alexander Julian, Geoffrey
Beene, Ron Chereskin, and Hawaiian Tropic. In 1995,
Mr. Sweedler co-founded, Windsong, Inc., a full
service apparel operating and marketing company.
Prior to Windsong, he worked as a Regional Account
Manager at Polo Ralph Lauren. He graduated from
Babson College with a B.S. in Finance & Investments
in 1988. He has served as a public director at Iconix
Brand Group and Bank of Westport as well as numerous
private organizations.
MEMBER: AUDIT AND COMPENSATION COMMITTEES
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CLASS II DIRECTORS: TERMS EXPIRING IN 2008
STEPHEN P. FORTE Mr. Forte has served as our Chief Executive Officer
since October 2005 and 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.
SUSAN WHITE 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 currently serves as a Director of People's
Liberation, Inc. (OTCBB: PPLB.OB). Ms. White received
a BA from Bay State College.
JONATHAN BURSTEIN Mr. Burstein served as our Vice President of
Operations from 1999 until January 2007, and has
served on our Board of Directors since 1999. During
this period, Mr. Burstein was responsible for many of
our internal operations, including logistics,
purchasing and managing key customer relationships.
From 1987 until 1999, Mr. Burstein was responsible
for managing many of our largest customer accounts.
Mr. Burstein has served as our Secretary beginning
November 2004.
CLASS III DIRECTORS: TERMS EXPIRING IN 2009
MARK DYNE 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
COLIN DYNE Mr. Dyne has served as Vice Chairman of the Board of
Directors since 2005. Mr. Dyne is CEO and Co-Chairman
of People's Liberation, Inc. (OTCBB: PPLB.OB). 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.
6
RAYMOND MUSCI Ray Musci has served as a Director of the Company
since June 2005. Mr. Musci serves as a Director and
President of MPLC, Inc. (OTCBB:MPNC), a publicly
traded company that develops, publishes and
distributes mobile entertainment services and
products. From October 1999 to June 2005, Mr. Musci
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. 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 AND COMPENSATION COMMITTEES
OTHER EXECUTIVE OFFICERS
LONNIE D. SCHNELL 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.
WOUTER VAN BIENE 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.
BOARD MEETINGS AND COMMITTEES.
The Board of Directors held nine general meetings during fiscal 2006.
The Board of Directors also acted twice by unanimous written consent during
2006. 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
2006. While we have 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 stockholders. 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 and attached to this Proxy Statement as Appendix B. 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, Miller and
Sweedler and all 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. The audit committee held four meetings during fiscal 2006.
COMPENSATION COMMITTEE. The compensation committee currently consists
of Messrs. Cohen, Musci and Sweedler. 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 formally during 2006.
NOMINATING COMMITTEE. The nominating committee currently consists of
Mr. 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 did not meet formally during fiscal 2006 and acted by
unanimous written consent twice during fiscal year 2006. All members of the
nominating committee are independent directors within the meaning of applicable
AMEX listing standards. The nominating committee operates pursuant to a written
charter attached to this Proxy Statement as Appendix C.
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
2006, as its functions were performed by the full Board of Directors.
8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The Compensation Committee of our Board of Directors currently consists
of Brent Cohen, Raymond Musci and William Sweedler. None of our current
executive officers 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
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.
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.
COMPENSATION DISCUSSION AND ANALYSIS
Tag-It Pacific, Inc.'s executive compensation program is administered
by the Compensation Committee of our Board of Directors, or referred to in this
section as the "Committee." The Committee is responsible for, among other
functions: (1) reviewing and approving corporate goals and objectives relevant
to the Chief Executive Officer's compensation and evaluating the performance of
the Chief Executive Officer in light of these corporate goals and objectives;
(2) reviewing and making recommendations to the Board of Directors with respect
to the compensation of other executive officers; (3) administering our
incentive-compensation and equity based plans, which may be subject to the
approval of the Board of Directors; and (4) negotiating, reviewing and
recommending the annual salary, bonus, stock options and other benefits, direct
and indirect, of the Chief Executive Officer, and other current and former
executive officers. The Committee also has the authority to select and/or retain
outside counsel, compensation and benefits consultants, or any other consultants
to provide independent advice and assistance in connection with the execution of
its responsibilities.
9
Our named executive officers for 2006 were as follows:
o Stephen P. Forte, Chief Executive Officer;
o Wouter van Biene, Chief Operating Officer (appointed as of March 1,
2006);
o Lonnie D. Schnell, Chief Financial Officer (appointed as of January 26,
2006);
o August DeLuca, former Chief Financial Officer (resigned as of January
20, 2006); and
o Jonathan Burstein, former Executive Vice President of Operations
(resigned as of January 1, 2007).
COMPENSATION PHILOSOPHY.
Our executive compensation program is designed to drive company
performance to maximize shareholder value while meeting our needs and the needs
of our employees. The specific objectives of our executive compensation program
include the following:
o ALIGNMENT - to align the interests of executives and
shareholders through equity-based compensation awards;
o RETENTION - to attract, retain and motivate highly qualified,
high performing executives to lead our continued growth and
success; and
o PERFORMANCE - to provide rewards commensurate with performance
by emphasizing variable compensation that is dependant upon
the executive's achievements and company performance.
In order to achieve these specific objectives, our executive
compensation program is guided by the following core principles:
o Rewards under incentive plans are based upon our short-term
and longer-term financial results and increasing shareholder
value;
o Senior executive pay is set at sufficiently competitive levels
to attract, retain and motivate highly talented individuals
who are necessary for us to achieve our goals, objectives and
overall financial success;
o Compensation of an executive is based on such individual's
role, responsibilities, performance and experience, taking
into account the desired pay relationships within the
executive team; and
o Our executive compensation program places a strong emphasis on
performance-based variable pay to ensure a high
pay-for-performance culture. Annual performance of our company
and the executive are taken into account in determining annual
bonuses that ensures a high pay-for-performance culture.
COMPENSATION ELEMENTS.
We compensate senior executives through a variety of components,
including base salary, annual incentives, equity incentives, and benefits and
perquisites, in order to provide our employees with a competitive overall
compensation package. The mix and value of these components are impacted by a
variety of factors, such as responsibility level, individual negotiations and
performance and market practice. The purpose and key characteristics for each
component are described below.
BASE SALARY
Base salary provides executives with a steady income stream and is
based upon the executive's level of responsibility, experience, individual
performance and contributions to our overall success. Competitive base salaries,
in conjunction with other pay components, enable us to attract and retain highly
talented executives. The Committee typically sets base salaries for our senior
executives at market levels. However, base salaries will vary in practice based
upon an individual's performance, individual experience and negotiations and for
changes in job responsibilities.
10
ANNUAL INCENTIVE BONUSES
Annual incentive bonuses are a variable performance-based component of
compensation. The primary objective of an annual incentive bonus is to reward
executives for achieving corporate and individual goals and to align a
meaningful portion of total pay opportunities for executives and other key
employees to the attainment of our company's performance goals. Annual incentive
awards are also used as a means to recognize the contribution of our executive
officers to overall financial, operational and strategic success. In conjunction
with our employment agreement with our Chief Executive Officer, we established a
Management Incentive Program (the "MIP") which provides that 15% of the
Company's earnings before interest and taxes (or "EBIT") will be set aside each
fiscal year for payment to the CEO and such other members of management as
determined by the Board of Directors. For 2006, one-half of the MIP fund is
allocable to the CEO, with the distribution of the balance to other members of
management as determined by the Board of Directors. For 2007 and future periods
through 2009 (or until the CEO's employment agreement terminates, if earlier),
one-third of the MIP Fund is allocable to the CEO.
EQUITY INCENTIVES
Equity incentives are intended to align senior executive and
shareholder interests by linking a meaningful portion of executive pay to
long-term shareholder value creation and financial success over a multi-year
period. Equity incentives are also provided to our executives to attract and
enhance the retention of executives and other key employees and to facilitate
stock ownership by our senior executives. The Committee also considers
individual and company performance when determining long-term incentive
opportunities.
HEALTH & WELFARE AND 401-K BENEFITS
The named executive officers participate in a variety of retirement,
health and welfare, and paid time-off benefits designed to enable us to attract
and retain our workforce in a competitive marketplace. Health and welfare and
paid time-off benefits help ensure that we have a productive and focused
workforce.
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
We do not have a formal plan for severance or separation pay for our
employees, but we typically include a severance provision in the employment
agreements of our executive officers that is triggered in the event of
involuntary termination without cause or in the event of a change in control.
In order to preserve the morale and productivity and encourage
retention of our key executives in the face of the disruptive impact of an
actual or rumored change in control, we provide a bridge to future employment in
the event that an executive's job is eliminated as a consequence of a change in
control. This provision is intended to align executive and shareholder interests
by enabling executives to consider corporate transactions that are in the best
interests of the shareholders and other constituents without undue concern over
whether the transactions may jeopardize the executive's own employment. Our
employment agreements with our current named executive officers provide a lump
sum payment and benefits continuation as a result of an involuntary termination
without cause or for good reason following a change in control, plus accelerated
vesting of stock or option awards.
OTHER BENEFITS
In order to attract and retain highly qualified executives, we provide
some of our named executive officers, including our CEO, with automobile
allowances that we believe are consistent with current market practices. Our
executives also may participate in a 401(k) plan under which we match
contributions for all employees up to 100% of an employee's contributions to a
maximum of $1,000 and subject to any limitations imposed by ERISA.
OTHER FACTORS AFFECTING COMPENSATION.
ACCOUNTING AND TAX CONSIDERATIONS
We consider the accounting implications of all aspects of our executive
compensation program. Our executive compensation program is designed to achieve
the most favorable accounting (and tax) treatment possible as long as doing so
does not conflict with the intended plan design or program objectives.
11
PROCESS FOR SETTING EXECUTIVE COMPENSATION.
When making pay determinations for named executive officers, the
Committee considers a variety of factors including, among others: (1) actual
company performance as compared to pre-established goals, (2) overall company
performance and size relative to industry peers, (3) individual executive
performance and expected contribution to our future success, (4) changes in
economic conditions and the external marketplace and (5) in the case of named
executive officers, other than Chief Executive Officer, the recommendation of
our Chief Executive Officer. Ultimately, the Committee uses its judgment when
determining how much to pay our executive officers. The Committee evaluates each
named executive officer's performance during the year against established goals,
leadership qualities, business responsibilities, current compensation
arrangements and long-term potential to enhance shareholder value. The opinions
of outside consultants are also taken into consideration in deciding what
salary, bonus, long-term incentives and other benefits and severance to give
each executive in order to meet our objectives stated above. The Committee
considers, compensation information from data gathered from annual reports and
proxy statements from companies that the Committee generally considers
comparable to the Company; compensation of other Company employees for internal
pay equity purposes; and levels of other executive compensation plans from
compensation surveys. The Committee sets the pay for the named executive
officers and other executives, by element and in the aggregate, at levels that
it believes are competitive and necessary to attract and retain talented
executives capable of achieving the Company's long-term objectives.
FACTORS CONSIDERED
In administering the compensation program for senior executives,
including named executive officers, the Committee considers the following:
o CASH VERSUS NON-CASH COMPENSATION. The pay elements are
cash-based except for the long-term incentive program, which
is equity-based. In 2006, the long-term incentive program for
the named executive officers consisted entirely of stock
grants and option awards that vest in installments over a one
to four year period;
o PRIOR YEAR'S COMPENSATION. The committee considers the prior
year's bonuses and long-term incentive awards when approving
bonus payouts or equity grants;
o ADJUSTMENTS TO COMPENSATION. On an annual basis, and in
connection with setting executive compensation packages, the
Committee reviews our operating income growth, earnings before
interest and taxes growth, earnings per share growth, cash
flow growth, operating margin, revenue growth, and total
shareholder return performance. In addition, the Committee
considers peer group pay practices, emerging market trends and
other factors. No specific weighing is assigned to these
factors nor are particular targets set for any particular
factor. Total compensation from year to year can vary
significantly based on our and the individual executive's
performance. The base compensation of our Chief Executive
Officer increased at the end of 2006 from $275,000 annually to
$325,000 for 2007 in accordance with the provisions in his
employment contract. Additionally, in October 2006 our Chief
Financial Officer's base compensation was increased from
$185,000 annually to $225,000 as a consequence of superior
performance and individual contributions to achievement of the
Company's objectives.
o APPLICATION OF DISCRETION. It is our policy and practice to
use discretion in determining the appropriate compensation
levels considering performance.
12
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of our Board of Directors consists of Brent Cohen,
Raymond Musci and William Sweedler. 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 has reviewed and discussed with management the
Compensation Discussion and Analysis included in this report. Based on the
review and discussion with management, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included
in the Company's Annual Report on Form 10-K and in this proxy statement.
COMPENSATION COMMITTEE
Brent Cohen
Raymond Musci
William Sweedler
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE.
The following table sets forth, as to each person serving as Chief
Executive Officer and Chief Financial Officer during 2006, and the three most
highly compensated executive officers other than the Chief Executive Officer and
Chief Financial Officer who were serving as executive officers at the end of the
2006 whose compensation exceeded $100,000 (referred to as "named executive
officers"), information concerning all compensation earned for services to us in
all capacities for 2006.
NON-EQUITY
INCENTIVE
STOCK OPTION PLAN ALL OTHER
NAME AND SALARY AWARDS AWARDS COMPENSATION COMPENSATION TOTAL
PRINCIPAL POSITION YEAR ($) ($)(5) ($)(6) ($) ($)(7) ($)
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
Stephen P. Forte ................ 2006 275,000 77,468 73,995 90,050 35,497 552,010
Chief Executive Officer
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
Wouter van Biene (1) ............ 2006 180,000 -- 27,526 45,025 7,006 259,557
Chief Operating Officer
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
Lonnie D. Schnell (2) ........... 2006 171,346 -- 31,998 45,025 24,634 273,003
Chief Financial Officer
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
August DeLuca (3) ............... 2006 19,372 1,071 -- -- 7,868 28,311
(former Chief Financial
Officer)
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
Jonathan Burstein (4) ........... 2006 240,000 28,516 -- -- 33,031 301,547
(former Executive V.P.)
--------------------------------- ------- ------- ------- ------- ------------ ------------ -------
(1) Mr. van Biene was appointed Chief Operating Officer effective March 1,
2006.
(2) Mr. Schnell was appointed Chief Financial Officer effective January 26,
2006.
(3) Mr. DeLuca resigned as Chief Financial Officer effective January 20,
2006.
(4) Mr. Burstein resigned as Executive Vice President of Operations
effective January 1, 2007.
(5) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2006 with respect to
stock awards and options granted in 2006 as well as prior fiscal years
under our 1997 Stock Plan in accordance with SFAS No. 123R. Pursuant to
SEC rules, the amounts shown exclude the impact of estimated
forfeitures related to service-based vesting conditions. For additional
information on the valuation assumptions with respect to these grants,
refer to note 9 to our consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2006. These amounts
do not reflect the actual value that may be realized by the named
executive officers which depends on the value of our shares in the
future.
(6) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2006 with respect to
inducement stock options granted in 2006 in accordance with SFAS 123R.
For additional information on the valuation assumptions with respect to
option grants, including the
13
options granted in 2006, see note 9 to the consolidated financial
statements in our Annual Report on Form 10-K for the year ended
December 31, 2006. These amounts do not reflect the actual value that
may be realized by the named executive officers which depends on the
value of our shares in the future.
(7) All other compensation consists of the following (amounts in dollars):
2007 Mr. Forte Mr. van Biene Mr. Schnell Mr. DeLuca Mr. Burstein
----------------------------------- --------- ------------- ----------- ---------- ------------
Health & medical insurance (a) .... 12,916 6,925 12,673 7,868 15,136
----------------------------------- --------- ------------- ----------- ---------- ------------
Life & disability insurance (b) ... 81 81 81 -- 5,012
----------------------------------- --------- ------------- ----------- ---------- ------------
Automobile allowances ............. 22,500 -- -- -- 12,883
----------------------------------- --------- ------------- ----------- ---------- ------------
Consulting services (c) ........... -- -- 11,880 -- --
----------------------------------- --------- ------------- ----------- ---------- ------------
Total ........................ 35,497 7,006 24,624 7,868 33,031
----------------------------------- --------- ------------- ----------- ---------- ------------
(a) Includes payments of medical premiums.
(b) Includes executive and group term life insurance.
(c) Represents fees for services provided prior to employment.
EXECUTIVE COMPENSATION.
The 2006 compensation for our Chief Executive Officer was in
accordance with our employment agreement completed with Mr. Forte in March 2006.
The terms and conditions established in this agreement were the result of our
consideration of our 2005 operating performance, our 2005 Restructuring and
Strategic Plan and current operating performance levels, as well as the
compensation levels for our previous CEO, comparative industry compensation
levels, and negotiations with Mr. Forte. The base compensation was evaluated in
conjunction with the long-term equity awards and annual bonus incentives to
establish a compensation arrangement providing a substantial incentive for the
achievement of our long-term objectives and for adding shareholder value.
Accordingly, the base compensation was established near minimum industry levels
for the same role in comparable companies, and a long-term equity option of
900,000 shares of common stock, representing approximately 4.9% of our
outstanding shares, was established as an inducement to maximum performance
achievements and increased shareholder values. The option grant was established
to vest monthly over a three-year term, after a minimum initial term of twelve
months, to coincide with the objectives of the Company's Strategic Plan. In
addition to the long-term equity incentive, a cash incentive, the MIP fund, was
established as provided in Mr. Forte's employment agreement setting aside 15% of
the Company's EBIT for annual bonus awards to Mr. Forte and the other senior
executives. One-half of this MIP Fund was allocated to Mr. Forte in 2006 and is
shown in the table above as non-equity incentive plan compensation, and
one-third of the MIP fund is to be allocated to Mr. Forte in 2007 through 2009.
In addition, Mr. Forte was provided a stock grant of 135,135 shares, and an
additional option grant, vesting in one year, for 135,135 shares of common
stock, in consideration of his significant contributions in the initial
development and implementation of the Company's 2005 Restructuring Plan, and the
development of the Company's Strategic Plan.
Messrs. van Biene and Schnell were employed early in 2006 at the
recommendation of the Chief Executive Officer to assist in the completion of the
2005 Restructuring and Strategic Plan. The terms and conditions established in
their employment agreements were also the result of our consideration of our
2005 operating performance, our 2005 Restructuring and Strategic Plan and
current operating performance levels, as well as our previous compensation
levels for similar positions, comparative industry compensation levels, and
individual negotiations. The base compensation was evaluated in conjunction with
the long-term equity awards and annual bonus incentives to establish a
compensation arrangement providing a substantial incentive for the achievement
of our long-term objectives and for adding shareholder value. Accordingly, the
base compensation for their positions was established near minimum industry
levels for the same role in comparable companies, and long-term equity
incentives in the form of grants of options to purchase 325,000 shares to Mr.
van Biene and 400,000 shares to Mr. Schnell, were established as an inducement
to maximum performance achievements and increased shareholder values. The
options vest monthly over a three-year term for Mr. van Biene, and a four-year
term for Mr. Schnell, after a minimum initial term of twelve months, to coincide
with the objectives of the Company's Strategic Plan. In addition Mr. van Biene
and Mr. Schnell are participants in the MIP fund established by us as described
above, pursuant to which we set aside 15% of our EBIT for annual bonus awards to
the CEO and the other senior executives as approved by the Board of Directors.
The payments allocated to Mr. van Biene and Mr. Schnell under the MIP fund are
shown in the summary compensation table as non-equity incentive plan
compensation.
We entered into an employment agreement with Mr. Burstein in March 2006
providing for base compensation of $240,000, and stock options to purchase
425,000 shares of common stock, vesting monthly over three years after a minimum
initial term of twelve months. January 1, 2007, we and Mr. Burstein mutually
terminated this employment agreement in exchange for a consulting agreement as
further described below in this report under "Employment Agreements, Termination
of Employment and Change of Control Arrangements".
14
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2006.
The following table provides information about equity-awards granted to
each named executive officer in 2006 under our 2007 Stock Plan and inducement
grants made outside of the plan.
ALL OTHER EXERCISE
ALL OTHER OPTION AWARDS: OR BASE GRANT DATE
STOCK AWARDS: NUMBER OF PRICE OF MARKET FAIR VALUE
NUMBER OF SECURITIES OPTION PRICE ON OF OPTION
GRANT APPROVAL SHARES OF UNDERLYING AWARDS GRANT DATE AWARDS
NAME DATE(1) DATE(1) STOCK (#) OPTIONS (#) ($/SH) (2) ($/SH) (2) ($)(3)
-------------------------------- ------- ------- ------------- -------------- ---------- ---------- ----------
Stephen P. Forte ............... 1/16/06 1/16/06 135,135 -- -- $ 0.37 50,000
1/16/06 1/16/06 -- 135,135 $ 0.37 $ 0.37 27,468
1/16/06 1/16/06 -- 900,000 $ 0.37 $ 0.37 187,515
-------------------------------- ------- ------- ------------- -------------- ---------- ---------- ----------
Wouter van Biene ............... 3/1/06 1/26/06 -- 325,000 $ 0.53 $ 0.50 98,552
-------------------------------- ------- ------- ------------- -------------- ---------- ---------- ----------
Lonnie D. Schnell .............. 1/26/06 1/26/06 -- 400,000 $ 0.59 $ 0.57 137,387
-------------------------------- ------- ------- ------------- -------------- ---------- ---------- ----------
Jonathan Burstein .............. 1/16/06 1/16/06 -- 425,000 $ 0.37 $ 0.37 89,223
-------------------------------- ------- ------- ------------- -------------- ---------- ---------- ----------
(1) The grant date of an option award is the date that the compensation
committee fixes as the date the recipient is entitled to receive the
award. The approval date is the date that the compensation committee
approves the award.
(2) The exercise price of option awards differs from the market price on
the date of grant. The exercise price of options granted in 2006 is
equal to the average closing sales prices of our common stock for the
five trading days prior to and including the grant date, as reported on
AMEX, , while the market price on the date of grant is the closing
price of our common stock on that date.
(3) The grant date fair value is generally the amount the company would
expense in its financial statements over the award's service period,
but does not include a reduction for forfeitures.
Option awards granted to our executive officers are for a 10 year term,
and generally vest on a monthly pro rata basis over a 3 or 4 year period, with a
12-month delay required prior to the initial vesting of any shares. Upon a
change of control or involuntary termination without cause, the vesting of all
options granted to the named executive officers in 2006 is accelerated to the
date of termination, as described below under "Employment Agreements,
Termination of Employment and Change of Control Arrangements."
15
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR 2006.
The following table provides information with respect to outstanding
stock options held by each of the named executive officers as of December 31,
2006
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS
------------------------------------ OPTION OPTION
(#) (#) EXCERCISE EXPIRATION
NAME GRANT DATE EXERCISABLE UNEXERCISABLE PRICE ($) DATE
------------------------ --------------- --------------- --------------- --------------- ---------------
Stephen P. Forte ....... 1/16/06 135,135 -- $ 0.37 1/16/2016
1/16/06 350,000 550,000 $ 0.37 1/16/2016
------------------------ --------------- --------------- --------------- --------------- ---------------
Wouter van Biene ....... 3/1/06 -- 325,000 $ 0.53 3/01/2016
------------------------ --------------- --------------- --------------- --------------- ---------------
Lonnie D. Schnell ...... 1/26/06 -- 400,000 $ 0.59 1/26/2016
------------------------ --------------- --------------- --------------- --------------- ---------------
Jonathan Burstein ...... 1/16/06 -- 425,000 $ 0.37 1/16/2016
4/11/03 35,000 -- $ 3.50 4/11/2013
12/31/02 25,000 -- $ 3.63 12/31/2012
11/08/01 15,000 -- $ 3.64 11/08/2011
12/12/00 20,000 -- $ 3.75 12/12/2010
4/10/00 15,000 -- $ 4.25 4/10/2010
2/28/00 15,000 -- $ 4.63 2/28/2010
12/20/99 20,000 -- $ 4.31 12/20/2009
10/10/98 30,000 -- $ 1.30 10/10/2008
------------------------ --------------- --------------- --------------- --------------- ---------------
(1) Mr. Forte's options become exercisable at 25,000 shares per month over
the next 22 months.
(2) Mr. van Biene's options become exercisable with regard to 108,333
shares on March 1, 2007 and then with respect to 9,028 shares per month
over the next 24 months.
(3) Mr. Schnell's options become exercisable with regard to 100,000 shares
on January 26, 2007 and then with respect to 8,333 shares per month
over the next 36 months.
(4) Mr. Burstein's options become exercisable with regard to 141,667 shares
on January 16, 2007 and then with respect to 11,806 shares per month
over the next 24 months.
OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2006.
The following table provides information with respect to vesting of
stock during the year ended December 31, 2006. There were no stock option
exercises by any of the named executive officers during 2006
STOCK AWARDS
-----------------------------------
NUMBER OF SHARES VALUE REALIZED
ACQUIRED ON ON VESTING
NAME VESTING (#) ($)(1)
------------------------------------------ ---------------- ----------------
Stephen P. Forte ......................... 135,135 50,000
------------------------------------------ ---------------- ----------------
Wouter van Biene ......................... -- --
------------------------------------------ ---------------- ----------------
Lonnie D. Schnell ........................ -- --
------------------------------------------ ---------------- ----------------
Jonathan Burstein ........................ -- --
------------------------------------------ ---------------- ----------------
(1) Represents the number of shares vested times the closing price of our
common stock on the vesting date as reported by AMEX.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS.
EMPLOYMENT AGREEMENTS
We have entered into the following employment agreements with our named
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
16
December 31, 2008, which may be extended to December 31, 2009. Pursuant to this
agreement, Mr. Forte receives 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 vested 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.
On March 16, 2006, we entered into an employment agreement 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 is entitled
to 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 agreement with Lonnie
Schnell, pursuant to which Mr. Schnell serves as our Chief Financial Officer on
an "at-will" basis. Pursuant to this offer letter, as amended, Mr. Schnell is
entitled to 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. 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 twelve
months 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. 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.
Effective January 1, 2007, we entered into a consulting agreement with
Jonathan Burstein, previously our Executive Vice President of Operations. Under
the terms of the consulting agreement, Mr. Burstein will provide specified
consulting services to us for a term of up to 24 months. As consideration for
the services, we will pay Mr. Burstein an amount of $225,000 per annum plus an
additional $3,333.33 per month for the first 18 months of the term of the
agreement. We also agreed to provide Mr. Burstein with medical benefits and an
automobile allowance for a period of 18 months. In addition, the consulting
agreement provides that the employment offer letter previously entered into with
Mr. Burstein on March 16, 2006, is terminated as of January 1, 2007. The
termination of the employment offer letter was mutually agreed upon by both
parties and Mr. Burstein will not be entitled to receive any severance or other
benefits in connection with the termination. All outstanding stock options held
by Mr. Burstein will continue to vest in accordance with their terms as long as
Mr. Burstein continues to provide services to us or serves on our Board of
Directors.
17
POTENTIAL SEVERANCE PAYMENTS
As described above, our employment agreements with Messrs. Forte, van
Biene and Schnell provide for severance benefits in the event that the
executive's employment is terminated due to executive's death or disability or
by the Company without "cause" and, in the case of Mr. Forte, for "good reason."
The following table sets forth severance payments and benefits that we would
have been obligated to pay to Messrs. Forte, van Biene and Schnell assuming a
triggering event had occurred under each of their respective agreements as of
December 31, 2006:
VALUE OF
CONTINUATION OF ACCELERATION OF
CASH SEVERANCE BONUS VALUE HEALTH BENEFITS VESTING OF EQUITY TOTAL SEVERANCE
NAME PAYMENT ($)(1) ($)(2) ($) AWARDS ($)(3) BENEFITS ($)
-------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Stephen P. Forte ... 565,847 90,050 16,415 566,500 1,238,812
-------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Wouter van Biene ... 132,149 -- 5,538 195,273 332,960
-------------------- ----------------- ----------------- ----------------- ----------------- -----------------
Lonnie D. Schnell .. 124,994 -- 6,005 154,498 285,497
-------------------- ----------------- ----------------- ----------------- ----------------- -----------------
(1) Includes (i) earned and unpaid base salary through the date of
termination, (ii) accrued but unpaid vacation and (iii) cash severance
payments based on the executive's salary payable in a lump sum or
periodic payments as provided in the executive's employment agreement.
(2) Includes (i) bonus amounts under the MIP earned for the completed
fiscal year and (ii) a pro rated portion of bonus under the MIP for
partial fiscal years prior to the termination date.
(3) Based on the closing price of our common stock on December 29, 2006 of
$1.03, as reported by AMEX.
POTENTIAL CHANGE IN CONTROL PAYMENTS
As described above, our employment agreements with Messrs. Forte, van
Biene and Schnell provide for accelerated vesting of all or a portion of the
options held by such executives upon a change in control. The following table
sets forth the change in control benefits that we would have been obligated to
pay to our named executive officers assuming a change of control had occurred as
of December 31, 2006:
VALUE OF ACCELERATION OF VESTING OF EQUITY AWARDS ($)(1)
--------------------------------------------------------
CHANGE IN CONTROL WITH
NAME CHANGE IN CONTROL ONLY (2) ADDITIONAL TRIGGER (3)
---------------------- --------------------------- ---------------------------
Stephen P. Forte ..... 556,500 556,500
---------------------- --------------------------- ---------------------------
Wouter van Biene ..... 167,375 334,750
---------------------- --------------------------- ---------------------------
Lonnie D. Schnell .... 206,000 412,000
---------------------- --------------------------- ---------------------------
(1) Based on the closing price of our common stock on December 29, 2006 of
$1.03, as reported by AMEX.
(2) Upon a change in control, (i) Mr. Forte is entitled to full
acceleration of currently outstanding options and (ii) Messrs. van
Biene and Schnell are each entitled to accelerated vesting with respect
to 50% of the unvested portion of outstanding options.
(3) Messrs. van Biene and Schnell are each entitled to full acceleration of
vesting of the remaining unvested portion of all outstanding stock
options if, within in 12 months following the change in control: (i) he
is terminated by the acquirer, (ii) his position is reduced to less
than a general manager position or a vice president level position,
(iii) his base pay is reduced below his prevailing base pay amount at
the time of the change in control or (iv) he is asked to relocate to an
office more than 60 miles from his office prior to the change in
control.
DIRECTOR COMPENSATION
The general policy of the Board of Directors is that compensation for
independent directors should be a mix of cash and equity-based compensation. We
do not pay management directors for Board service in addition to their regular
employee compensation. The full Board of Directors has the primary
responsibility for reviewing and considering any revisions to director
compensation.
18
The following table details the total compensation earned by the
company's non-employee directors in 2006.
FEES EARNED OR OPTION ALL OTHER
NAME PAID IN CASH ($) AWARDS ($)(8) COMPENSATION ($) TOTAL ($)
-------------------------------- ---------------- ---------------- ---------------- ----------------
Mark Dyne (1) .................. 42,000 12,139 25,000 79,139
-------------------------------- ---------------- ---------------- ---------------- ----------------
Colin Dyne (2) ................. -- 12,139 335,000 347,139
-------------------------------- ---------------- ---------------- ---------------- ----------------
Brent Cohen (3) ................ 39,500 12,139 -- 51,639
-------------------------------- ---------------- ---------------- ---------------- ----------------
Joseph Miller (4) .............. 44,500 12,139 -- 56,639
-------------------------------- ---------------- ---------------- ---------------- ----------------
Raymond Musci (5) .............. 46,000 12,139 -- 58,139
-------------------------------- ---------------- ---------------- ---------------- ----------------
William Sweedler (6) ........... 18,583 12,033 -- 30,616
-------------------------------- ---------------- ---------------- ---------------- ----------------
Susan White (7) ................ 30,500 12,139 -- 42,639
-------------------------------- ---------------- ---------------- ---------------- ----------------
Total ....................... 221,083 84,867 360,000 665,950
-------------------------------- ---------------- ---------------- ---------------- ----------------
(1) As of December 31, 2006, Mr. Mark Dyne held options to purchase a total
of 323,000 shares. The other compensation consists of per diem fees
earned for services rendered.
(2) As of December 31, 2006, Mr. Colin Dyne held options to purchase a
total of 565,000shares. The other compensation consists of consulting
fees for services rendered.
(3) As of December 31, 2006, Mr. Cohen held options to purchase a total of
125,000 shares.
(4) As of December 31, 2006, Mr. Miller held options to purchase a total of
60,000 shares.
(5) As of December 31, 2006, Mr. Musci held options to purchase a total of
60,000 shares.
(6) As of December 31, 2006, Mr. Sweedler held options to purchase a total
of 30,000 shares.
(7) As of December 31, 2006, Ms. White held options to purchase a total of
60,000 shares.
(8) The amounts in this column represent the dollar amounts recognized for
financial statement purposes in fiscal 2006 with respect to stock
options granted in 2006 as well as prior fiscal years, in accordance
with SFAS 123R. For additional information on the valuation assumptions
with respect to option grants, including the options granted in 2006,
see note 9 to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2006. These amounts
do not reflect the actual value that may be realized by the named
executive officers which depends on the value of our shares in the
future.
Our policy is to pay non-employee directors $1,500 for their personal
attendance at any meeting of the Board of Directors, $1,000 for their personal
attendance at any committee meeting, and $500 for attendance at any telephonic
meeting of the Board of Directors or of a committee of the Board of Directors.
We also pay non-employee directors an annual retainer of $20,000 for Board
service and an additional retainer of $5,000 for service on each committee. The
Chairman of the Board receives an annual retainer of $25,000 for Board service.
We also reimburse directors for their reasonable travel expenses incurred in
attending board or committee meetings and pay non-employee directors a per diem
for board services.
We do not have a formal policy with regard to option grants to our
Board of Directors, but we generally follow a practice of granting an option for
30,000 shares of stock upon initial appointment or election to the Board of
Directors, and thereafter issuing annual option grants to all non-employee
members of 30,000 shares.
During 2006 and through March 31, 2007 we had a verbal agreement with
Mr. Colin Dyne to provide consulting services following his resignation in 2005
as our Chief Executive Officer. For the year ended December 31, 2006, we paid
Mr. Dyne $275,000 annually for these services in addition to $60,000 in a cash
settlement of a prior stock option commitment. We entered into a written
agreement was completed with Mr. Dyne effective April 1, 2007 that provides for
continued consulting services through November 30, 2008 in exchange for a
consulting fee of $25,000 per month.
19
EQUITY COMPENSATION PLAN INFORMATION.
The following table sets forth certain information as of December 31,
2006 regarding equity compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE REMAINING AVAILABLE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF FOR FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
----------------------- ----------------------- -----------------------
Equity compensation plans
approved by security holders ........ 3,452,635 $ 1.84 2,321,977
Equity compensation plans not
approved by security holders ........ 2,868,813 $ 2.14 --
----------------------- ----------------------- -----------------------
Total .............................. 6,321,448 $ 1.98 2,321,977
======================= ======================= =======================
Options and warrants issued pursuant to equity compensation plans not approved
by security holders are summarized as follows:
o 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.
o 30,000 warrants issued for services in 2004, are exercisable
at $4.29 per share and expire in July 2007.
o 172,500 warrants issued for services in 2003, are exercisable
at $5.06 per share and expire in May 2008.
o 572,818 warrants issued for services in 2003, are exercisable
at $4.74 per share and expire in December 2008.
o 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.
o 215,754 warrants issued for services in 2004, are exercisable
at $3.65 per share and expire in November 2009.
o 1,625,000 inducement options issued to employees in 2006 are
exercisable at a weighted average exercise price of $0.46 per
share and expire in January and March of 2016.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
REVIEW AND APPROVAL OF RELATED PARTY TRANSACTIONS
We have adopted a policy that requires Board approval of transactions
with related persons as defined by SEC regulations, including any sales or
purchase transaction, asset exchange transaction, operating agreement, or
advance or receivable transaction that could put our assets or operating
performance at risk. All of our directors and executive officers are required at
all times, but not less than annually, to disclose all relationships they have
with companies or individuals that have conducted business with, or had an
interest in, our Company. Our executive officers monitor our operations giving
consideration to the disclosed relationships and refer potential transactions to
the Board of Directors for approval. The Board of Directors considers a related
party transaction for its potential economic benefit to us, to ensure the
transaction is "arms length" and in accordance with our policies and that it is
properly disclosed in our reports to stockholders.
REPORTABLE RELATED PARTY TRANSACTIONS
Other than the employment arrangements described elsewhere in this
report and the transactions described below, since January 1, 2006, there has
not been, nor is there currently proposed, any transaction or series of similar
transactions to which we were or will be a party:
o in which the amount involved exceeds $120,000; and
20
o in which any director, executive officer, shareholder who
beneficially owns 5% or more of our common stock or any member
of their immediate family had or will have a direct or
indirect material interest.
Colin Dyne, a member of our Board, is CEO and Co-Chairman, and a
significant shareholder of People's Liberation, Inc., the parent company of
Versatile Entertainment, Inc. During 2006, we had sales of $147,000 to Versatile
Entertainment. At December 31, 2006 accounts receivable of $83,400 were
outstanding from Versatile Entertainment. Susan White, a member of our Board, is
also a member of the Board of Directors of People's Liberation, Inc.
At December 31, 2006, we had an aggregate of $655,489 of unsecured
notes, advances and accrued interest receivable due from Colin Dyne. The notes
and advances bear interest at 7.5% and are due on demand.
As December 31, 2006, we had an aggregate of $664,971 in notes and
advances due to Mark Dyne, the Chairman of our Board of Directors or to parties
related to or affiliated with Mark Dyne. The notes are payable on demand and
accrue interest at rates ranging from 0% to 11% per annum.
We paid consulting fees to Diversified Investments, a company owned by
Mark Dyne, in the amount of $150,000 during the year ended December 31, 2006.
We paid consulting fees of $335,000 to Colin Dyne during year ended
December 31, 2006 for consulting services provided, and have an agreement with
Mr. Dyne for services through November 30, 2008. See the "Director Compensation"
section in item 11 of this report for a description of this agreement.
On January 1, 2007 we entered into an agreement with Mr. Jonathan
Burstein, previously our Executive Vice President of Operations, and a Director
of the Board, to provide consulting services to the Company through December 31,
2008. See the "Employment Agreements, Termination of Employment and Change of
Control Arrangements" section in item 11 of this report for a full description
of this agreement.
DIRECTOR INDEPENDENCE.
Since July 2006, majority of our Board of Directors has been comprised
of "independent" directors within the meaning of the applicable rules for
companies traded on the American Stock Exchange. The Board determined that each
of Brent Cohen, Joseph Miller, Raymond Musci, William Sweedler and Susan White
were independent. The Board has also determined that each of Joseph Miller,
Raymond Musci and William Sweedler meet the independence requirements for
services on the Audit Committee pursuant to the rules for companies traded on
the American Stock Exchange.
21
AUDIT RELATED MATTERS
REPORT OF AUDIT COMMITTEE.
The Audit Committee of the Board of Directors, which consists of three
independent directors, as that term is defined in Section 121(A) of the listing
standards of the American Stock Exchange, has furnished the report set forth
below:
The Audit Committee assists the Board in overseeing and monitoring the
integrity of our financial reporting process, our compliance with legal and
regulatory requirements and the quality of our 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 our overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2006, the Audit Committee:
o Reviewed and discussed the audited financial statements for
the year ended December 31, 2006 with management and Singer
Lewak Greenbaum & Goldstein LLP ("SLGG"), our independent
registered public accounting firm;
o Discussed with SLGG the matters required to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct
of the audit;
o 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
o 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 our
Annual Report on Form 10-K for the year ended December 31,
2006 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
William Sweedler
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
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 our 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 $554,600 for fiscal year 2005 and $403,400 for
fiscal year 2006.
22
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 $0 for fiscal
year 2005 and $0 for fiscal year 2006.
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 $44,100 for fiscal year 2005 and $29,100 for fiscal
year 2006.
ALL OTHER FEES - There were no fees billed by our independent
registered accounting firms for services rendered to us during 2005 and 2006
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 (1) would create a
mutual or conflicting interest between us and our independent auditors, (2)
would place the independent auditors in the position of auditing its own work,
(3) would result in the independent auditors acting in the role of management or
as our employee, or (4) would place the independent auditors in a position of
acting as an advocate for us. 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.
23
ITEM 2: ADOPTION OF 2007 STOCK INCENTIVE PLAN
--------------------------------------------------------------------------------
Item 2 is the adoption of Tag-It Pacific, Inc.'s 2007 Stock Incentive
Plan (the "2007 Plan"), which authorizes the issuance of up to 2,600,000 shares
of our common stock pursuant to options or awards granted under the plan. The
proposal to adopt the 2007 Stock Incentive Plan requires the affirmative vote of
a majority of the shares of common stock represented and entitled to vote at the
Meeting. A copy of the 2007 Stock Incentive Plan is attached to this Proxy
Statement as Appendix A.
Our existing 1997 Stock Plan, as amended, terminates on October 1,
2007; accordingly the Board of Directors has proposed that the stockholders
approve the 2007 Stock Plan which will replace the 1997 Stock Plan. The number
of shares for the 2007 Stock Plan are substantially equal to the number of
shares currently available for option awards under the 1997 Stock Plan that is
expiring. The 2007 Stock Incentive Plan is designed to assist us in attracting,
retaining and compensating highly qualified individuals and to provide them with
a proprietary interest in our common stock.
No options or awards have been granted under the 2007 Stock Incentive Plan.
SUMMARY OF THE 2007 PLAN.
PURPOSE. The purpose of the 2007 Plan is to provide incentives and
rewards to selected eligible directors, officers, employees and consultants in
order to assist us and our subsidiaries in attracting, retaining and motivating
those persons by providing for or increasing the proprietary interests of those
persons in us, and by associating their interests with those of our
stockholders.
ADMINISTRATION. The 2007 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 2007 Plan
currently is administered by the Compensation Committee of the Board of
Directors. The party administering the 2007 Plan is referred to as the
"administrator." Subject to the provisions of the 2007 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 2007 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 us, any
instrument required to carry out the purposes of the 2007 Plan, (vii) by
resolution adopted by the Board, to authorize one or more of our officers to
designate eligible employees 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 2007 Plan. The administrator has full
power and authority to administer and interpret the 2007 Plan and to adopt,
amend and revoke such rules, regulations, agreements, guidelines and instruments
for the administration of the 2007 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 ours or any of our subsidiaries (a "participant"), is eligible to
be considered for the grant of awards under the 2007 Plan. No participant may
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 2007 Plan.
TYPES OF AWARDS. Awards authorized under the 2007 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 our 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 2007 Plan. An award may consist of
one such security or benefit, or two or more of them in tandem or in the
alternative.
24
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. 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 our capital stock 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 2007 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 2007 Plan.
AMENDMENT AND TERMINATION OF THE 2007 PLAN. The administrator may amend
the 2007 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 2007 Plan. However, no such action by the Board of Directors
or stockholders may unilaterally alter or impair any award previously granted
under the 2007 Plan without the consent of the recipient of the award. In any
event, the 2007 Plan shall terminate ten years following the date it was
approved by our 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 our officers, directors and more
than 10% stockholders ("Insiders") pursuant to awards granted to them under the
2007 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 us 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 2007 Plan is designed to comply with Rule 16b-3.
U.S. TAX CONSEQUENCES
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, "non statutory stock options" and restricted stock
and restricted stock unit awards, based upon the United States Internal Revenue
Code, and the Treasury Regulations promulgated thereunder, all of which are
subject to modification at any time. The 2007 Plan does not constitute a
qualified retirement plan under Section 401(a) of the Internal Revenue 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 option grants under the 2007 Plan may be intended to qualify as
incentive stock options under Section 422 of the tax code or may be
non-qualified stock options governed by Section 83 of the tax code. Generally,
no federal income tax is payable by a participant upon the grant of a stock
option, and a deduction is not taken by the company. Under current tax laws, if
a participant exercises a non-qualified stock option, he or she will have
taxable income equal to the difference between the market price of the common
stock on the exercise date and the stock option grant price. We will be entitled
to a corresponding deduction on our income tax return. A participant will not
have any taxable income upon exercising an incentive stock option (except that
the alternative minimum tax may apply), and we will not receive a deduction when
an incentive stock option is exercised. The treatment for a participant of a
disposition of shares acquired through the exercise of an option depends on how
long the shares were held and on whether the shares were acquired by exercising
an incentive stock option or a non-qualified stock option. We may be entitled to
a deduction in the case of a disposition of shares acquired under an incentive
stock option before the applicable holding periods have been satisfied.
Restricted stock also is governed by Section 83 of the tax code.
Generally, no taxes are due when the award is initially made, but the award
becomes taxable when it is no longer subject to a "substantial risk of
forfeiture" (it becomes vested or transferable). Income tax is paid on the value
of the stock or units at ordinary rates when the restrictions lapse, and then
usually at long-term capital gain (if such shares are held for more than a year)
or short-term capital gain rates (if such shares are held for less than one
year) when the shares are sold.
25
The American Jobs Creation Act of 2004 added Section 409A to the tax
code, generally effective January 1, 2005. The IRS has issued regulations that,
in part, give employers until the end of 2007 to effect Section 409A
implementation in almost all circumstances. Section 409A covers most programs
that defer the receipt of compensation to a succeeding year. It provides rules
for elections to defer (if any) and for timing of payouts. There are significant
penalties placed on the individual employee for failure to comply with Section
409A. However, it does not affect our ability to deduct deferred compensation.
Section 409A applies to restricted stock units, performance units, and
performance shares. Grants under such plans will continue to be taxed at vesting
but will be subject to new limits on plan terms governing when vesting may
occur. If grants under such plans do not allow employees to elect further
deferral on vesting or on distribution, under the proposed regulations no
negative impact should attach to the grants.
Section 409A does not apply to incentive stock options, non-qualified
stock options (that are not issued at a discount), and restricted stock,
provided that there is no deferral of income beyond the vesting date. Section
409A also does not cover SARs and stock options if they are issued by a public
company on its traded stock, the exercise price is not less than the fair market
value of the underlying stock on the date of grant, the rights with respect to
SARs are settled in such stock, and there are not any features that defer the
recognition of income beyond the exercise date.
As described above, awards granted under the 2007 Plan may qualify as
"performance-based compensation" under Section 162(m) of the tax code. To
qualify, options and other awards must be granted under the 2007 Plan by a
Committee of the Board consisting solely of two or more "outside directors" (as
defined under Section 162 regulations) and satisfy the 2007 Plan's limit on the
total number of shares that may be awarded to any one participant during any
calendar year. In addition, for awards other than options and stock-settled SARs
to qualify, the grant, issuance, vesting, or retention of the award must be
contingent upon satisfying one or more of the performance criteria set forth in
the 2007 Plan, as established and certified by a Committee consisting solely of
two or more "outside directors."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ADOPTION OF
THE 2007 STOCK INCENTIVE PLAN.
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial
ownership of our common stock as of June 1, 2007:
o each person who is known to us to be the beneficial owner of
more than 5% of our outstanding common stock;
o each of our directors and nominees;
o each of our named executive officers; and
o all of our directors and executive officers as a group
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned by
any person who has or shares voting or investment power with respect to such
shares. Shares of common stock under warrants or options currently exercisable
or exercisable within 60 days of the date of this information are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such warrants or options but are not deemed outstanding for computing
the percentage ownership of any other person. As a result, the percentage of
outstanding shares of any person as shown in this table does not necessarily
reflect the person's actual ownership or voting power with respect to the number
of shares of common stock actually outstanding at June 1, 2007. 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 1, 2007, we had 18,541,433
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.
NUMBER OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OF CLASS
------------------------------------------------------- --------- ---------
DIRECTORS:
Mark Dyne (1) ......................................... 1,269,778 6.7%
Colin Dyne (2) ........................................ 1,107,680 5.8%
Stephen P. Forte (3) .................................. 862,087 4.5%
Jonathan Burstein (4) ................................. 697,578 3.7%
Lonnie D. Schnell (5) ................................. 250,000 1.3%
Wouter van Biene (6) .................................. 181,944 1.0%
William Sweedler (7) .................................. 132,000 *
Brent Cohen (8) ....................................... 125,000 *
Raymond Musci (8) ..................................... 60,000 *
Joseph M. Miller (8) .................................. 60,000 *
Susan White (8) ....................................... 60,000 *
Directors and executive officers as a group
(11 persons) (9) .................................... 4,806,067 22.7%
OTHER 5% HOLDERS:
The Pinnacle Fund, L.P. (10) .......................... 1,095,890 5.6%
4965 Preston Park Blvd., Suite 240
Plano, TX 75093
Todd Kay .............................................. 1,003,500 5.4%
3151 East Washington Blvd.
Los Angeles, CA 90023
* Less than one percent.
(1) Includes 323,000 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 a member.
(2) Includes 565,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable.
27
(3) Includes 660,135 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable.
(4) Includes 387,500 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable, and 130,240
shares owned by Mr. Burstein's spouse and children.
(5) Includes 150,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable.
(6) Includes 144,444 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable.
(7) Includes 30,000 shares of common stock reserved for issuance upon
exercise of stock options that are currently exercisable.
(8) Consists of shares of common stock reserved for issuance upon the
exercise of the stock options that are currently exercisable.
(9) Includes 2,565,079 shares of common stock reserved for issuance upon
exercise of stock options which currently are exercisable, and 111,111
shares of common stock reserved for issuance upon conversion of debt
which is currently exercisable.
(10) Information taken from Schedule 13G filed with the SEC on February 14,
2007. Consists of 1,095,890 shares of common stock reserved for
issuance upon conversion of convertible promissory notes that are
currently convertible.
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 us with all Section
16(a) forms they file. Based solely on our review of the copies of the forms
received by us 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, 2006, all of our executive officers,
directors and greater-than-ten percent stockholders complied with all Section
16(a) filing requirements, except that Jonathan Burstein filed a late Form 5 on
May 22, 2007.
STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the 2008 annual
meeting of stockholders for inclusion in our Proxy Statement and Proxy form
relating to such annual meeting must submit such proposal to us or our principal
executive offices by April 2, 2008. In addition, in the event a stockholder
proposal is not received by us by May 2, 2008, the Proxy to be solicited by the
Board of Directors for the 2008 annual meeting will confer discretionary
authority on the holders of the Proxy to vote the shares if the proposal is
presented at the 2008 annual meeting without any discussion of the proposal in
the Proxy Statement for such meeting.
SEC rules and regulations provide that if the date of our annual
meeting is advanced or delayed more than 30 days from the date of the 2007
annual meeting, stockholder proposals intended to be included in the proxy
materials for the 2008 annual meeting must be received by us within a reasonable
time before we begin to print and mail the proxy materials for the 2008 annual
meeting. Upon determination by us that the date of the 2007 annual meeting will
be advanced or delayed by more than 30 days from the date of the 2007 annual
meeting, we will publicly disclose such change.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Singer Lewak Greenbaum & Goldstein LLP, independent registered public
accounting firm, was selected by the Board of Directors to serve as our
independent registered public accounting firm of the Company for fiscal 2007.
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.
28
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 us. We 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 our directors and
officers, without additional compensation, personally or by mail, telephone,
telegram or otherwise.
ANNUAL REPORT ON FORM 10-K
OUR ANNUAL REPORT ON FORM 10-K AND FORM 10K/A WHICH HAVE BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31,
2006, 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
/s/ Lonnie D. Schnell
-----------------------------------
Lonnie D. Schnell
Chief Financial Officer
Tag-It Pacific, Inc.,
21900 Burbank Boulevard, Suite 270,
Woodland Hills, California 91367
June 5, 2007
29
APPENDIX A
TAG-IT PACIFIC, INC.
2007 STOCK PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 2007 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, $0.001 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.
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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 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; PROVIDED,
that, in each case, to the extent any amount constituting "nonqualified
deferred compensation" subject to Section 409A of the Code would become
payable under an Award by reason of a change of control, it shall
become payable only if the event or circumstances constituting the
change of control would also constitute a change in the ownership or
effective control of the Company, or a change in the ownership of a
substantial portion of the Company's assets, within the meaning of
subsection (a)(2)(A)(v) of Section 409A of the Code.
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.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Stock Options) shall not exceed an
aggregate of 2,600,000 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
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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. Unless the Board or
Committee determines otherwise, any adjustments hereunder shall be done on terms
and conditions consistent with Section 409A of the Code.
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.
b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Award, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
c) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
d) ASSIGNMENT OR TRANSFER. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
A-3
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.
j) SECTION 409A. Awards under the Plan are intended either to be exempt
from the rules of Section 409A of the Code or to satisfy those rules, and the
Plan and such awards shall be construed accordingly. Granted rights may be
modified at any time, in the Board's or the Committee's discretion, so as to
increase the likelihood of exemption from or compliance with the rules of
Section 409A of the Code.
9. AMENDMENTS AND TERMINATION.
a) AMENDMENTS. The Board may at any time terminate or from time to time
amend the Plan in whole or in part, but no such action shall adversely affect
any rights or obligations with respect to any Awards theretofore made under the
Plan. However, with the consent of the Participant affected, the Board may amend
outstanding agreements evidencing Awards under the Plan in a manner not
inconsistent with the terms of the Plan.
b) STOCKHOLDER APPROVAL. To the extent that Section 422 of the Code,
other applicable law, or the rules, regulations, procedures or listing agreement
of any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the stockholders of the Company, no such
amendment shall be effective unless and until it is approved by the stockholders
in such a manner and to such a degree as is required.
c) TERMINATION. Unless the Plan shall theretofore have been terminated
as above provided, the Plan (but not the awards theretofore granted under the
Plan) shall terminate on and no awards shall be granted after July 31, 2017.
10. EFFECTIVE DATE.
The Plan is effective on October 1, 2007.
11. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed
and governed by the laws of the State of Delaware applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
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APPENDIX B
AMENDED & RESTATED
CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
TAG-IT PACIFIC, INC.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "COMMITTEE") of the Board of Directors (the
"BOARD") of Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY").
I. PURPOSE
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report of the audit committee required by the United States Securities and
Exchange Commission (the "SEC") for inclusion in the Company's annual proxy
statement; (c) retain and terminate the Company's independent accountant; (d)
approve audit and non-audit services to be performed by the independent
accountant; and (e) perform such other functions as the Board may from time to
time assign to the Committee. In performing its duties, the Committee shall seek
to maintain an effective working relationship with the Board, the independent
accountant, the internal auditors and management of the Company.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than
five, members (including a Chairperson), all of whom shall be "independent
directors," as such term is defined in the rules and regulations of the SEC and
the American Stock Exchange ("AMEX"). The members of the Committee and the
Chairperson shall be selected by the Board and serve at the pleasure of the
Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the SEC or any securities exchange or market on which shares of
the common stock of the Company are traded. The Chairperson shall maintain
regular communication with the chief executive officer, chief financial officer,
the lead partner of the independent accountant and the manager of the internal
audit.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices and be able to read and understand
financial statements. Committee members may enhance their familiarity with
finance and accounting by participating in educational programs conducted by the
Company or an outside consultant.
Except for Board and Committee fees, a member of the Committee shall
not be permitted to accept any fees paid directly or indirectly for services as
a consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and AMEX, including Rule 10A-3 promulgated under the
Securities Exchange Act of 1934. In addition, no member of the Committee may be
an "affiliated person" of the Company or any of its subsidiaries (as such term
is defined by the SEC). Members of the Committee may receive their Board and
Committee fees in cash, Company stock or options or other in-kind consideration
as determined by the Board or the Compensation Committee, as applicable, in
addition to all other benefits that other directors of the Company receive. No
director may serve on the Committee, without the approval of the Board, if such
director simultaneously serves on the audit committee of more than three public
companies.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least quarterly, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of any member of the Committee, preferably in conjunction with regular Board
B-1
meetings. The Committee may meet by telephone conference call or by any other
means permitted by law or the Company's Bylaws. A majority of the members of the
Committee shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Committee may act by unanimous written consent of all
members. The Committee shall determine its own rules and procedures, including
designation of a chairperson pro tempore, in the absence of the Chairperson, and
designation of a secretary. The secretary need not be a member of the Committee
and shall attend Committee meetings and prepare minutes. The Committee shall
keep written minutes of its meetings, which shall be recorded or filed with the
books and records of the Company. Any member of the Board shall be provided with
copies of such Committee minutes if requested.
The Committee may ask members of management, employees, outside
counsel, the independent accountant or others whose advice and counsel are
relevant to the issues then being considered by the Committee, to attend any
meetings and to provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
As part of its responsibility to foster free and open communication,
the Committee should meet periodically with management, the internal auditors
and the independent accountant in separate executive sessions to discuss any
matters that the Committee or any of these groups believe should be discussed
privately. In addition, the Committee or at least its Chairperson should meet
with the independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in SECTION IV. The Committee may also meet from time
to time with the Company's investment bankers, investor relations professionals
and financial analysts who follow the Company.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:
A. OVERSIGHT OF THE FINANCIAL REPORTING PROCESSES
1. In consultation with the independent accountant and
the internal auditors, review the integrity of the
organization's financial reporting processes, both
internal and external.
2. Review and approve all related-party transactions,
unless such responsibility has been reserved to the
full Board or delegated to another committee of the
Board.
3. Consider the independent accountant's judgments about
the quality and appropriateness of the Company's
accounting principles as applied in its financial
reporting. Consider alternative accounting principles
and estimates.
4. Annually review major issues regarding the Company's
auditing and accounting principles and practices and
its presentation of financial statements, including
the adequacy of internal controls and special audit
steps adopted in light of material internal control
deficiencies.
5. Discuss with management and legal counsel the status
of pending litigation, taxation matters, compliance
policies and other areas of oversight applicable to
the legal and compliance area as may be appropriate.
6. Meet at least annually with the chief financial
officer, the internal auditors and the independent
accountant in separate executive sessions.
7. Review all analyst reports and press articles about
the Company's accounting and disclosure practices and
principles.
B-2
8. Review all analyses prepared by management and the
independent accountant of significant financial
reporting issues and judgments made in connection
with the preparation of the Company's financial
statements, including any analysis of the effect of
alternative generally accepted accounting principles
("GAAP") methods on the Company's financial
statements and a description of any transactions as
to which management obtained Statement on Auditing
Standards No. 50 letters.(1)
9. Review with management and the independent accountant
the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the
Company's financial statements.
B. REVIEW OF DOCUMENTS AND REPORTS
1. Review and discuss with management and the
independent accountant the Company's annual audited
financial statements and quarterly financial
statements (including disclosures under the section
entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operation") and
any reports or other financial information submitted
to any governmental body, or the public, including
any certification, report, opinion or review rendered
by the independent accountant, considering, as
appropriate, whether the information contained in
these documents is consistent with the information
contained in the financial statements and whether the
independent accountant and legal counsel are
satisfied with the disclosure and content of such
documents. These discussions shall include
consideration of the quality of the Company's
accounting principles as applied in its financial
reporting, including review of audit adjustments
(whether or not recorded) and any such other inquires
as may be appropriate. Based on the review, the
Committee shall make its recommendation to the Board
as to the inclusion of the Company's audited
consolidated financial statements in the Company's
annual report on Form 10-K.
2. Review and discuss with management and the
independent accountant earnings press releases, as
well as financial information and earnings guidance
provided to analysts and rating agencies. The
Committee need not discuss in advance each earnings
release but should generally discuss the types of
information to be disclosed and the type of
presentation to be made in any earnings release or
guidance.
3. Review the regular internal reports to management
prepared by the internal auditors and management's
response thereto.
4. Review reports from management, the internal auditors
and the independent accountant on the Company's
subsidiaries and affiliates, compliance with the
Company's code(s) of conduct, applicable law and
insider and related party transactions.
5. Review with management and the independent accountant
any correspondence with regulators or government
agencies and any employee complaints or published
reports that raise material issues regarding the
Company's financial statements or accounting
policies.
6. Prepare the report of the audit committee required by
the rules of the SEC to be included in the Company's
annual proxy statement.
7. Submit the minutes of all meetings of the Committee
to, or discuss the matters discussed at each
Committee meeting with, the Board.
8. Review any restatements of financial statements that
have occurred or were recommended. Review the
restatements made by other clients of the independent
accountant.
----------------------
(1) SAS No. 50 provides performance and reporting standards for written
reports from accountants with respect to the application of accounting
principles to new transactions and financial products or regarding
specific financial reporting issues.
B-3
C. INDEPENDENT ACCOUNTANT MATTERS
1. The Committee shall be directly responsible for
interviewing and retaining the Company's independent
accountant, considering the accounting firm's
independence and effectiveness and approving the
engagement fees and other compensation to be paid to
the independent accountant.
2. On an annual basis, the Committee shall evaluate the
independent accountant's qualifications, performance
and independence. To assist in this undertaking, the
Committee shall require the independent accountant to
submit a report (which report shall be reviewed by
the Committee) describing (a) the independent
accountant's internal quality-control procedures, (b)
any material issues raised by the most recent
internal quality-control review, or peer review, of
the accounting firm or by any inquiry or
investigations by governmental or professional
authorities (within the preceding five years)
respecting one or more independent audits carried out
by the independent accountant, and any steps taken to
deal with any such issues and (c) all relationships
the independent accountant has with the Company and
relevant third parties to determine the independent
accountant's independence. In making its
determination, the Committee shall consider not only
auditing and other traditional accounting functions
performed by the independent accountant, but also
consulting, legal, information technology services
and other professional services rendered by the
independent accountant and its affiliates. The
Committee shall also consider whether the provision
of any of these non-audit services is compatible with
the independence standards under the guidelines of
the SEC and of the Independence Standards Board.
3. Approve in advance any non-audit services to be
provided by the independent accountant and adopt
policies and procedures for engaging the independent
accountant to perform non-audit services.
4. Review on an annual basis the experience and
qualifications of the senior members of the audit
team. Discuss the knowledge and experience of the
independent accountant and the senior members of the
audit team with respect to the Company's industry.
The Committee shall ensure the regular rotation of
the lead audit partner and audit review partner as
required by law and consider whether there should be
a periodic rotation of the Company's independent
accountant.
5. Review the performance of the independent accountant
and terminate the independent accountant when
circumstances warrant.
6. Establish and periodically review hiring policies for
employees or former employees of the independent
accountant.
7. Review with the independent accountant any problems
or difficulties the auditor may have encountered and
any "management" or "internal control" letter
provided by the independent accountant and the
Company's response to that letter. Such review should
include:
(a) any difficulties encountered in the
course of the audit work, including any restrictions
on the scope of activities or access to required
information and any disagreements with management;
(b) any accounting adjustments that were
proposed by the independent accountant that were not
agreed to by the Company;
(c) communications between the independent
accountant and its national office regarding any
issues on which it was consulted by the audit team
and matters of audit quality and consistency;
(d) any changes required in the planned
scope of the internal audit; and
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(e) the responsibilities, budget and
staffing of the Company's internal audit function.
8. Communicate with the independent accountant regarding
(a) critical accounting policies and practices to be
used in preparing the audit report, (b) alternative
treatments of financial information within the
parameters of GAAP that were discussed with
management, including the ramifications of the use of
such alternative treatments and disclosures and the
treatment preferred by the independent accountant,
(c) other material written communications between the
independent accountant and management of the Company,
and (d) such other matters as the SEC and AMEX may
direct by rule or regulation.
9. Periodically consult with the independent accountant
out of the presence of management about internal
controls and the fullness and accuracy of the
organization's financial statements.
10. Oversee the independent accountant relationship by
discussing with the independent accountant the nature
and rigor of the audit process, receiving and
reviewing audit reports and ensuring that the
independent accountant has full access to the
Committee (and the Board) to report on any and all
appropriate matters.
11. Discuss with the independent accountant prior to the
audit the general planning and staffing of the audit.
12. Obtain a representation from the independent
accountant that Section 10A of the Securities
Exchange Act of 1934 has been followed.
D. INTERNAL AUDIT CONTROL MATTERS
1. Discuss with management policies with respect to risk
assessment and risk management. Although it is
management's duty to assess and manage the Company's
exposure to risk, the Committee should discuss
guidelines and policies to govern the process by
which risk assessment and management is handled and
review the steps management has taken to monitor and
control the Company's risk exposure.
2. Establish regular and separate systems of reporting
to the Committee by each of management, the
independent accountant and the internal auditors
regarding any significant judgments made in
management's preparation of the financial statements
and the view of each as to appropriateness of such
judgments.
3. Following completion of the annual audit, review
separately with each of management, the independent
accountant and the internal auditors any significant
difficulties encountered during the course of the
audit, including any restrictions on the scope of
work or access to required information.
4. Review with the independent accountant, the internal
auditors and management the extent to which changes
or improvements in financial or accounting practices
have been implemented. This review should be
conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided
by the Committee.
5. Advise the Board about the Company's policies and
procedures for compliance with applicable laws and
regulations and the Company's code(s) of conduct.
6. Establish procedures for receipt, retention and
treatment of complaints and concerns regarding
accounting, internal accounting controls or auditing
matters, including procedures for confidential,
anonymous submissions from employees regarding
questionable accounting or auditing matters.
7. Periodically discuss with the chief executive officer
and chief financial officer (a) significant
deficiencies in the design or operation of the
internal controls that could
B-5
adversely affect the Company's ability to record,
process, summarize and report financial data and (b)
any fraud that involves management or other employees
who have a significant role in the Company's internal
controls.
8. Ensure that no officer, director or any person acting
under their direction fraudulently influences,
coerces, manipulates or misleads the independent
accountant for purposes of rendering the Company's
financial statements materially misleading.
E. EVALUATION OF INTERNAL AUDITORS
1. Review activities, organizational structure and
qualifications of the internal auditors.
2. Review and concur in the appointment, replacement,
reassignment or dismissal of the manager of internal
auditing.
3. Consider and review with management and the manager
of internal auditing:
(a) significant findings during the year and
management's responses thereto;
(b) any difficulties encountered in the
course of internal audits, including any restrictions
on the scope of the internal auditors' work or access
to required information;
(c) any changes required in the planned
scope of the internal auditors' audit plan;
(d) the internal auditors' budget and
staffing; and
(e) the internal auditors' compliance with
The Institute of Internal Auditors' Standards for the
Professional Practice of Internal Auditing.
While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it
is meeting its responsibilities under this Charter. In this review, the
Committee shall consider, among other things, (a) the appropriateness of the
scope and content of this Charter, (b) the appropriateness of matters presented
for information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding to retain
special legal, accounting or other consultants (without seeking Board approval)
to advise the Committee. The Committee may conduct or authorize investigations
into or studies of matters within the Committee's scope of responsibilities as
described herein, and may retain, at the expense of the Company, independent
counsel or other consultants necessary to assist the Committee in any such
investigations or studies. The Committee shall have sole authority to negotiate
and approve the fees and retention terms of such independent counsel or other
consultants.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments thereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any stockholder of the Company who requests it.
B-6
APPENDIX C
CHARTER OF THE NOMINATING COMMITTEE
OF THE BOARD OF DIRECTORS OF
TAG-IT PACIFIC, INC.
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Nominating Committee (the "COMMITTEE") of the Board of Directors
(the "BOARD") of Tag-It Pacific, Inc., a Delaware corporation (the "COMPANY").
I. PURPOSE
The Committee is responsible for: (a) assisting the Board in
determining the desired experience, mix of skills and other qualities to assure
appropriate Board composition, taking into account the current Board members and
the specific needs of the Company and the Board; (b) identifying highly
qualified individuals meeting those criteria to serve on the Board; (c)
proposing to the Board a slate of nominees for election by the stockholders at
the Annual Meeting of Stockholders and prospective director candidates in the
event of the resignation, death, removal or retirement of directors or a change
in Board composition requirements; (d) reviewing candidates nominated by
stockholders for election to the Board; (e) reviewing management succession
plans; and (f) such other functions as the Board may from time to time assign to
the Committee. In performing its duties, the Committee shall seek to maintain an
effective working relationship with the Board and the Company's management.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than
five, members (including a Chairperson), all of whom shall be "independent
directors," as such term is defined in the rules and regulations of the American
Stock Exchange ("AMEX"). Notwithstanding the foregoing, the Committee may have
as one of its members a "non-independent director" for a period not to exceed
two years due to exceptional and limited circumstances pursuant to Section
804(b) of the AMEX Company Guide. The members of the Committee and the
Chairperson shall be selected by the Board and serve at the pleasure of the
Board. A Committee member (including the Chairperson) may be removed at any
time, with or without cause, by the Board. The Board may designate one or more
independent directors as alternate members of the Committee, who may replace any
absent or disqualified member or members at any meetings of the Committee. No
person may be made a member of the Committee if his or her service on the
Committee would violate any restriction on service imposed by any rule or
regulation of the United States Securities and Exchange Commission or any
securities exchange or market on which shares of the common stock of the Company
are traded. The Committee shall have authority to delegate responsibilities
listed herein to subcommittees of the Committee if the Committee determines such
delegation would be in the best interest of the Company.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least once each year, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of its Chairperson, preferably in conjunction with regular Board meetings. The
Committee may meet by telephone conference call or by any other means permitted
by law or the Company's Bylaws. A majority of the members of the Committee shall
constitute a quorum. The Committee shall act on the affirmative vote of a
majority of members present at a meeting at which a quorum is present. Without a
meeting, the Committee may act by unanimous written consent of all members. The
Committee shall determine its own rules and procedures, including designation of
a chairperson pro tempore, in the absence of the Chairperson, and designation of
a secretary. The secretary need not be a member of the Committee and shall
attend Committee meetings and prepare minutes. The Committee shall keep written
minutes of its meetings, which shall be recorded or filed with the books and
records of the Company. Any member of the Board shall be provided with copies of
such Committee minutes if requested.
The Committee may ask members of management or others whose advice and
counsel are relevant to the issues then being considered by the Committee, to
attend any meetings and to provide such pertinent information as the Committee
may request.
C-1
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its oversight responsibilities, the Committee's
policies and procedures should remain flexible to enable the Committee to react
to changes in circumstances and conditions so as to ensure the Company remains
in compliance with applicable legal and regulatory requirements. In addition to
such other duties as the Board may from time to time assign, the Committee shall
have the following responsibilities:
A. BOARD CANDIDATES AND NOMINEES
1. To propose to the Board a slate of nominees for
election by the stockholders at the Annual Meeting of
Stockholders and prospective director candidates in
the event of the resignation, death, removal or
retirement of directors or a change in Board
composition requirements;
2. To develop criteria for the selection of new
directors and nominees for vacancies on the Board,
including procedures for reviewing potential nominees
proposed by stockholders;
3. To review with the Board the desired experience, mix
of skills and other qualities to assure appropriate
Board composition, taking into account the current
Board members and the specific needs of the Company
and the Board;
4. To conduct candidate searches, interview prospective
candidates and conduct programs to introduce
candidates to the Company, its management and
operations, and confirm the appropriate level of
interest of such candidates;
5. To recommend to the Board, with the input of the
Chief Executive Officer, qualified candidates for the
Board who bring the background, knowledge,
experience, skill sets and expertise that would
strengthen and increase the diversity of the Board;
6. To conduct appropriate inquiries into the background
and qualifications of potential nominees;
7. To review the suitability for continued service as a
director of each Board member when he or she has a
significant change in status, such as an employment
change, and recommending whether or not such director
should be re-nominated; and
8. To work with senior management to provide an
orientation and continuing education program for
directors.
Notwithstanding the provisions set forth in this Section IV, if the
Company is legally required by contract or otherwise to provide third parties
with the ability to nominate directors (e.g., preferred stock rights to elect
directors upon a dividend default, stockholder agreements and management
agreements), the selection and nomination of such directors need not be subject
to the Committee's nominating and review process.
B. EVALUATIONS AND MANAGEMENT DEVELOPMENT
1. To develop and review periodically a process for and
to assist the Board with conducting, not less
frequently than annually, an evaluation of the
effectiveness of the Board as a whole;
2. To develop and review periodically a process for and
to assist the Board with conducting, not less
frequently than annually, an evaluation of the
Company's management;
3. To review the Company's management succession plans
to help assure proper management planning; and
C-2
4. To review the Chief Executive Officer's
recommendations, and to make recommendations to the
Board, as requested, for senior officer positions.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it
is meeting its responsibilities under this Charter. In this review, the
Committee shall consider, among other things, (a) the appropriateness of the
scope and content of this Charter, (b) the appropriateness of matters presented
for information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee may conduct or authorize investigations into or studies
of matters within the Committee's scope of responsibilities as described herein,
and may retain, at the expense of the Company, independent counsel or other
consultants necessary to assist the Committee in any such investigations or
studies, if authorized by the Board. The Committee shall have sole authority to
retain and terminate any search firm to be used to identify director candidates,
including the sole authority to negotiate and approve the fees and retention
terms of such search firm.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments thereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any stockholder of the Company who requests it.
C-3
TAG-IT PACIFIC, INC.
PROXY FOR THE 2007 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, 2007, 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 I directors:
Joseph Miller Brent Cohen William Sweedler
[_] 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 approve the Company's 2007 Stock 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 5, 2007 and the accompanying Proxy Statement relating to the Annual
Meeting.
Dated:___________________________, 2007
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