EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive
Employment Agreement
(this "AGREEMENT") is made and
entered into as of this 16th day of March, 2006 (the "EFFECTIVE DATE"), by and
between TAG-IT PACIFIC, INC., a Delaware corporation (the
"COMPANY") and STEPHEN
FORTE ("EXECUTIVE").
1.
ENGAGEMENT AND DUTIES.
1.1 Commencing
as of the Effective
Date, and upon the terms and
subject to the
conditions set forth
in this Agreement,
the
Company hereby engages and employs Executive as an officer of
the Company, with the title and designation of Chief Executive
Officer of
the Company. Executive hereby accepts such
engagement and employment.
1.2
Executive's duties
and responsibilities
shall
be those
normally and
customarily
vested in the office of Chief
Executive
Officer of
a corporation, subject to the
supervision, direction
and control of the
Board of Directors
(the "BOARD") of the Company. Executive shall report
directly
to the Board.
1.3 Executive
agrees
to devote his primary business time,
energies,
skills, efforts
and attention to his duties
hereunder, and will
not, without the prior written consent of
the Board, which
consent will not be
unreasonably
withheld,
render any material services to any other for-profit business
concern, PROVIDED,
that Executive's service on the boards (or
similar bodies)
of the entities listed on EXHIBIT A hereto
shall not constitute any violation of this Agreement.
Executive will use his
best efforts and abilities faithfully
and diligently to promote the Company's business interests.
1.4 Except for
routine travel incident to the business of the
Company, Executive
shall perform his
duties and
obligations
under this Agreement
principally from an
office provided by
the Company
in Woodland Hills, California, or such other
location in Los Angeles or Ventura County, California, as the
Board may from time to time determine.
2. TERM
OF EMPLOYMENT.
Executive's employment
pursuant to this Agreement
shall commence
on the Effective Date and shall terminate on the
earliest to occur of the following (in any case, the "TERM"):
(a) the close
of business on December 31, 2008, PROVIDED, that if
the Company has not given Executive Notice of its decision not
to renew the Term on
or before July 1,
2008, then, unless
otherwise terminated
as provided below, the Term shall be
automatically extended
until the earlier of
(i) a date which
is six (6) months following delivery after July 1, 2008 by the
Company to Executive
of Notice of its
decision not to extend
the Term further, and (ii) December 31, 2009;
(b) the death
of Executive;
(c) delivery
to Executive of written Notice (as defined below) of
termination by
the Company if Executive shall suffer a
"PERMANENT
DISABILITY," which for
purposes of this
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Agreement shall mean a
condition that
entitles Executive
to
benefits under an applicable Company long-term disability plan
or, if no such plan
exists, a physical or
mental disability
which, in the
reasonable judgment of
the Board, is likely to
render Executive
unable to perform his duties and obligations
under this Agreement for 90 days in any 12-month period;
(d) delivery
to Executive of written Notice of termination by the
Company for
"Cause," which Notice shall identify the
particular details of
the conduct that the
Company believes
constitutes Cause.
For purposes of this
Agreement,
"Cause"
shall mean: (i) any
act or omission
knowingly undertaken
or
omitted by Executive
with the intent of causing damage to the
Company, its
properties,
assets
or business or its
stockholders,
officers, directors
or employees; (ii) any
fraud, misappropriation or embezzlement by Executive resulting
in a material
personal profit to Executive, in any case,
involving properties, assets or funds of the Company or any of
its subsidiaries;
(iii) Executive's consistent failure to
materially perform his
normal duties as
described in SECTION
1.2, other than any such failure resulting from Executive's
Permanent Disability;
(iv) conviction of, or pleading nolo
contendere to, (A) any
crime or offense
involving monies
or
other property
of the Company; or (B) any felony offense
involving a crime
of moral turpitude; or (v) Executive's
chronic or habitual use or consumption of drugs or alcoholic
beverages, in either
case, that causes material damage to the
Company, its properties, assets or business, PROVIDED, that to
the extent any circumstances that would otherwise constitute
Cause shall be capable
of cure, Executive
shall be given no
less than thirty days to cure such circumstances prior to any
termination of his employment for Cause;
(e) delivery
to Executive of written Notice of termination by the
Company "without Cause;"
(f) delivery
to the Company of written Notice of termination by
Executive for "GOOD
REASON," by reason of:
(i) the material
diminution
of
Executive's duties, job title or
responsibilities as
provided in SECTION 1 above; (ii) a
relocation of
Executive's
principal
work location to a
location that is
inconsistent
with the terms of
SECTION 1.4
above; (iii)
a material breach by the Company of this
Agreement, including
without limitation, a material reduction
in any component of
Executive's
compensation or
benefits as
provided for herein; or (iv) a change in Executive's reporting
arrangement such that
Executive no longer reports directly to
the Board; or
(g) delivery
to the Company of written Notice of termination by
Executive without "Good Reason."
3.
COMPENSATION; EXECUTIVE BENEFIT PLANS.
3.1 As soon as
practicable
(but in no event more
than 5 business
days) following the
Effective Date, the Company shall pay the
Executive a
lump-sum cash payment in an amount equal to
$7,480.76.
3.2 The
Company shall pay to Executive a base salary (the
"BASE
SALARY") at an annual
rate of (i)
$275,000 for the period
commencing on the
Effective Date and ending on December
31,
2006, and (ii) $325,000 during each subsequent calendar year
of the Term, subject
to increase,
but not decrease, on an
annual basis at the
discretion of the Board. The Base Salary
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shall be payable in
installments
throughout the year in
the
same manner
and at the same
times the Company pays base
salaries to
similarly situated executive officers of the
Company, but in any event, no less frequently than monthly.
3.3 Commencing
with fiscal year 2006 and for each
fiscal year
during the
Term thereafter during which Executive is
performing services to the Company, the Company shall maintain
a Management Incentive Program, pursuant to which the Company
will set aside each fiscal year for payment to Executive and
such other members of management as determined by the Board of
Directors, an amount
equal to fifteen
percent (15%) of the
Company's EBIT for
such fiscal
year (the "MIP
FUND"). For
purposes hereof,
"EBIT" shall mean
earnings before
interest
and taxes,
calculated
based
on the Company's audited
consolidated financial
statements for the
applicable fiscal
year prepared in accordance with generally accepted accounting
principles in the United States. Executive shall be entitled
to receive an EBIT based bonus (the "EBIT BONUS") equal to (i)
fifty percent
(50%) of the MIP Fund,
if any, for fiscal year
2006, and (ii) thirty
three percent (33%) of the MIP Fund, if
any, for each subsequent fiscal year during the Term. The EBIT
Bonus, if any,
shall be payable in cash on April 15 of the
year immediately following the fiscal year for which such EBIT
Bonus is calculated.
3.4 During
the Term, Executive shall be entitled each year to
vacation for a minimum of four calendar weeks (pro-rated for
any partial
year of service during the Term), plus such
additional period or
periods as the Board may approve in the
exercise of its reasonable discretion, during which time his
compensation shall
be paid in full. To the extent that
Executive does not use
any such vacation
during any year, up
to two calendar weeks of such unused vacation shall be carried
over from year to
year; provided,
however that in no event
shall Executive's
total accrued but unused vacation at any
time exceed six weeks.
3.5 As an
inducement
to Executive to accept
this Agreement
and
serve as Chief Executive Officer of the Company, Executive has
been granted an option
to purchase 900,000
shares of common
stock of the Company
(the "COMMON STOCK") at a per share
exercise price
of $0.37 (the "INDUCEMENT OPTION"). The
Inducement Option was granted to Executive outside of (and not
pursuant to) the Company's 1997 Stock Plan (the "STOCK
PLAN")
and shall be registered with the SEC on a Form S-8
Registration Statement
no later than May 31, 2006. Except as
otherwise
provided below, and
subject to earlier
termination
in accordance with its terms, the Inducement Option shall vest
as to 300,000 shares on October 24, 2006 and as to an
additional 25,000
shares on the last day of each calendar
month thereafter until fully vested. In addition, the Company
has granted
to Executive pursuant to the Stock Plan (i)
135,135 fully
vested shares of Common Stock (the "STOCK
GRANT"), and (ii) an
option to purchase 135,135 shares of
Common Stock at a per
share exercise price of $0.37 (the
"COMPANION OPTION").
The Companion Option
shall vest in full
on October 24, 2006.
Consistent with
SECTION 5.1(II)
below,
the option agreements
covering the
Inducement Option and the
Companion Option (the
"OPTION AGREEMENTS")
will provide for
the full acceleration of all applicable vesting requirements
upon (i) a change of control of the Company, as defined in the
applicable
agreement, and
(ii) upon a termination of
Executive's employment
without Cause, for
Good Reason or due
to Executive's death or Permanent Disability.
3.6 During
the Term, the Company shall pay to Executive, in
increments payable at the times that the Company pays the Base
Salary to Executive, an allowance of $1,500
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<PAGE>
per month for costs
associated
with the lease or
purchase,
maintenance and insurance of an automobile.
3.7 During the
Term, Executive shall
be entitled to reimbursement
from the Company for the reasonable costs and expenses which
he incurs in connection with the performance of his duties and
obligations under this
Agreement,
substantiated in a
manner
consistent with
the Company's practices and policies as
adopted or
approved from time to time by the Board for
executive officers.
For the avoidance of doubt, "business
class" travel shall
constitute reasonable
costs and expenses
on any international flight greater than five hours in
duration.
3.8 The
Company shall promptly pay or reimburse to Executive legal
fees actually
incurred by Executive
in connection
with the
negotiation and drafting of this Agreement, which fees shall
not exceed $10,000 in the aggregate.
3.9 The
Company may deduct from any compensation payable to
Executive the minimum amounts sufficient to cover applicable
federal, state
and/or local income and employment tax
withholding.
4.
OTHER BENEFITS.
During the Term, Executive shall be eligible to
participate in all operative employee compensation, fringe benefit and
perquisite, and other
benefit and welfare plans or arrangements of the
Company then
in effect from time to time and in which similarly
situated executive
officers of the
Company generally are
entitled to
participate, including
without limitation, to the extent then in
effect,
incentive, group
life, medical, dental, prescription,
disability and
other insurance plans, all on terms at least as
favorable as those
offered to similarly
situated executives of the
Company.
5.
TERMINATION OF EMPLOYMENT. Subject to the provisions of this
Section 5,
either the Company or Executive may terminate Executive's
employment at
any time for any
reason or no reason.
The following
provisions shall
control any such termination of Executive's employment.
5.1
TERMINATION
WITHOUT CAUSE,
FOR GOOD REASON, OR DUE TO
EXECUTIVE'S DEATH OR
PERMANENT DISABILITY. The Company may
terminate Executive's
employment
without Cause at any time
upon 15 days' prior written Notice to Executive, and Executive
may terminate his employment with Good Reason at any time upon
15 days' prior written
Notice to the Company,
in each case,
subject to any
applicable
cure periods (in the case of a
termination without
Cause or for Good Reason, the date
specified in any such Notice in accordance with this SECTION
5.1 shall constitute the "DATE OF TERMINATION"). For purposes
of clarity, the
Company's delivery of Notice in accordance
with SECTION 2(A) of
its decision not to renew the Term shall
not constitute
termination
without Cause, and shall be
governed by SECTION 5.5 below. Executive's employment shall
also terminate upon
the occurrence of
Executive's
death or
Permanent Disability
(in the case of a termination due to
Executive's death or
Permanent Disability, the date of the
death or the date
specified in a Notice from the Company
indicating termination
due to Permanent Disability shall
constitute the
"DATE OF TERMINATION"). If Executive's
employment is
terminated
pursuant to this
SECTION 5.1, the
Company shall
promptly, or in the case of obligations
described in clause (e) below, as such obligations become due
to Executive, pay or provide to
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<PAGE>
Executive (or his estate), (a) Executive's earned but unpaid
Base Salary accrued
through such Date of Termination, (b)
accrued but
unpaid vacation time through such Date of
Termination, (c)
any EBIT Bonus required to be paid to
Executive pursuant to
this Agreement
for any fiscal year
of
the Company ending
prior to the Date of
Termination, to
the
extent payable, but
not previously paid, (d) reimbursement of
any business expenses
incurred by Executive prior to the Date
of Termination that are reimbursable under SECTION 3.7 above,
and (e) any vested benefits and other amounts due to Executive
under any plan,
program, policy of, or
other agreement with,
the Company
(together,
the "ACCRUED OBLIGATIONS"). In
addition, Executive
(or his estate) shall
be entitled to the
following payments and
benefits (the
"SEVERANCE")
from the
Company:
(i) payment,
at the time and in the
manner specified
in
SECTION 5.2 below, of
an aggregate
amount equal to
Executive's Base
Salary (at the rate then in effect,
but disregarding
any reduction of Base Salary in
violation of this
Agreement)
that would have been
payable to the Executive had he remained employed by
the Company
for the period (such period, or the
period described in the next sentence, as applicable,
the "SEVERANCE
PERIOD") commencing on the Date of
Termination and ending
on December
31, 2008 or, if
later, the date
which is six (6)
months following
delivery by the Company of Notice of its decision not
to extend the Term (as
contemplated by SECTION 2(A),
which Notice,
if not previously given, shall be
deemed to be given on the Date of Termination for any
reason other than death or Permanent Disability). If
termination
occurs due
to death or Permanent
Disability, then such
amount shall be equal to the
Base Salary
that would have been payable to the
Executive had he
remained employed by the Company
through December 31,
2008. The Severance
payable to
the Executive
pursuant to this paragraph (i) is
hereinafter
referred to
as the "BASE SALARY
SEVERANCE";
(ii)
payment, at the time
specified in SECTION 5.2 below,
of a pro rated
portion of the EBIT Bonus for the
fiscal year in which the Date of Termination occurs,
where such pro rated portion is equal to: (a) fifteen
percent (15%) of the Company's EBIT, if any, for the
period (the
"EBIT Period") from January 1 of the
applicable fiscal
year through the last day of the
fiscal quarter
in which such Date of Termination
occurs, MULTIPLIED
BY (b) a ratio determined by
dividing the number of
days Executive
was employed
during the EBIT Period by the total number of days in
the EBIT Period, MULTIPLIED BY (c) either fifty
percent (50%) or
thirty-three percent
(33%) if such
Date of Termination
occurs during fiscal 2006 or
after fiscal 2006, respectively;
(iii) as
of the Date
of Termination, full vesting and
exercisability of
the Inducement Option and the
Companion
Option, which
Options
shall
remain
outstanding and
exercisable
for at least twelve
months
5
<PAGE>
following the
Date of Termination (and shall be
exercisable by Executive's estate in the event of his
death); and
(iv)
continued
healthcare coverage
for Executive (if
living) and his dependents for the Severance Period,
to the extent each such individual received
healthcare
coverage
immediately
prior to such
termination of
employment,
at the same cost to
Executive and his
dependents
as such coverage
cost
immediately prior to
such termination of
employment
(subject to premium increases affecting participants
in such plan(s)
generally),
PROVIDED, that if the
Board determines, in its sole discretion, that it is
necessary or
advisable for Executive to elect
continuation
healthcare coverage under Sectio
