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. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the
|_| Definitive Proxy Statement Commission Only (as permitted
|_| Definitive Additional Materials by Rule 14a-6(e)(2)
|_| Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
TARRANT APPAREL GROUP
================================================================================
(Name of Registrant as Specified in Its Charter)
================================================================================
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing Party:
________________________________________________________________________________
4) Date Filed:
________________________________________________________________________________
TARRANT APPAREL GROUP
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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TIME.................................... 10:00 a.m. Pacific Time on
Thursday, December 4, 2003
PLACE................................... Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
ITEMS OF BUSINESS....................... (1) To approve the issuance of
8,817,320 shares of common
stock issuable upon
conversion of the
outstanding shares of
Series A Preferred Stock.
(2) To approve an amendment to
the Articles of
Incorporation to increase
the authorized number of
shares of common stock
from 35,000,000 to
100,000,000.
(3) To approve the grant of
options to purchase
400,000 shares of common
stock to our President.
(4) To transact such other
business as may properly
come before the Special
Meeting and any
adjournment or
postponement.
RECORD DATE............................. You can vote if at the close of
business on October 31, 2003, you
were a shareholder of the Company.
PROXY VOTING............................ All shareholders are cordially
invited to attend the Special
Meeting in person. However, to
ensure your representation at the
Special Meeting, you are urged to
vote promptly by signing and
returning the enclosed Proxy card.
_______________, 2003
-----------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
TARRANT APPAREL GROUP
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(323) 780-8250
PROXY STATEMENT
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These Proxy materials are delivered in connection with the solicitation by the
Board of Directors of Tarrant Apparel Group, a California corporation
("Tarrant," the "Company", "we", or "us"), of Proxies to be voted at our 2003
Special Meeting of Shareholders and at any adjournments or postponements.
You are invited to attend our Special Meeting of Shareholders on Thursday,
December 4, 2003, beginning at 10:00 a.m. Pacific Time. The meeting will be held
at our corporate headquarters, 3151 East Washington Boulevard, Los Angeles,
California, 90023.
It is anticipated that this Proxy Statement and the accompanying Proxy will be
mailed to shareholders on or about November ___, 2003.
SHAREHOLDERS ENTITLED TO VOTE. Holders of our common stock at the close of
business on October 31, 2003 are entitled to receive this notice and to vote
their shares at the Special Meeting. Common stock is the only outstanding class
of securities of the Company entitled to vote at the Special Meeting. As of
October 31, 2003, there were 18,597,443 shares of common stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a shareholder 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 shareholders can vote by written proxy card. Your submission of the
enclosed Proxy will not limit your right to vote at the Special 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 shareholder 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
Special 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 Special Meeting, and not revoked, will be voted at the Special
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 shareholders entitled to vote at the Special Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Special Meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING. Each share of our common stock is entitled to one vote on each matter
properly brought before the Special Meeting.
APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION OF SERIES A PREFERRED
STOCK. The approval of the issuance of 8,817,320 shares of our common stock
issuable upon conversion of our outstanding shares of Series A Preferred Stock
will require the affirmative vote of a majority of the shares of common stock
present or represented and entitled to vote at the Special Meeting. For purposes
of the vote to approve the issuance of common stock upon conversion of the
Series A Preferred Stock, abstentions will be counted toward the tabulation of
votes cast on proposal 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.
AMENDMENT TO ARTICLES OF INCORPORATION. The approval of the amendment to our
Amended and Restated Articles of Incorporation to increase the number of shares
of common stock authorized for issuance from 35,000,000 to
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100,000,000 will require the affirmative vote of a majority of our outstanding
shares of common stock. For purposes of the vote regarding the increase of the
shares of common stock authorized for issuance, abstentions and broker non-votes
will have the same effect as votes against approval of the proposal.
APPROVAL OF EXECUTIVE STOCK OPTION GRANT. The approval of the grant of options
to purchase 400,000 shares of our common stock to our President will require the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Special Meeting. For purposes of the
vote to approve the stock option grant to our President, abstentions will be
counted toward the tabulation of votes cast on proposal 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.
VOTING AGREEMENTS. Sanders Morris Harris Inc., which acted as placement agent
for the Company with respect to the sale of the shares of Series A Preferred
Stock, has entered into voting agreements with certain shareholders of the
Company (the "Voting Agreements"), pursuant to which such shareholders have
agreed to vote all shares subject to the Voting Agreements in favor of the
proposals to approve the issuance of 8,817,320 shares of our common stock
issuable upon conversion of our outstanding shares of Series A Preferred Stock
and to increase the number of shares of common stock authorized for issuance
from 35,000,000 to 100,000,000. Concurrently with the execution of the Voting
Agreements, each such shareholder also delivered to Sanders Morris Harris an
irrevocable proxy appointing Sanders Morris Harris as proxy to vote the shares
in accordance with the Voting Agreements. The number of shares subject to the
Voting Agreements is 9,855,518, representing approximately 53% of the issued and
outstanding shares of common stock. The shareholders who have executed Voting
Agreements are Gerard Guez, our Chief Executive Officer and Chairman of our
Board, Todd Kay, the Vice Chairman of our Board, and Jamil Textil, S.A. de C.V.
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matter to be raised at the Special Meeting. However, if any other
business shall properly come before the Special Meeting or any adjournment
thereof, the persons named as proxies will have discretionary authority to vote
the shares of Common Stock represented by the accompanying proxy in accordance
with their best judgment.
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ITEM 1: APPROVAL OF ISSUANCE OF COMMON STOCK UPON CONVERSION OF SERIES A
PREFERRED STOCK
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Item 1 is the approval of the issuance of up to 8,817,320 shares of our common
stock upon conversion of our outstanding shares of Series A Preferred Stock. The
Board of Directors has approved, contingent upon approval by the Company's
shareholders at the Special Meeting, the issuance of 8,817,320 shares of our
common stock (the "Series A Conversion Shares") upon conversion of the Company's
outstanding shares of Series A Preferred Stock. The Board of Directors is
submitting the proposal to approve the issuance of the Series A Conversion
Shares to the shareholders for approval at the Special Meeting.
The Series A Conversion Shares, when issued, would become part of the existing
class of common stock and would have the same rights and privileges as the
shares of common stock now issued and outstanding. There are no preemptive
rights relating to the common stock. As of October 31, 2003, there were
18,597,443 shares of our common stock issued and outstanding. If issued, the
Series A Conversion Shares would represent approximately 32% of our issued and
outstanding shares of common stock. Our common stock is listed on the Nasdaq
Stock Market's National Market System. The continued listing requirements of the
Nasdaq Stock Market's National Market System prohibit us from issuing shares of
common stock in a non-public offering prior to obtaining shareholder approval if
the price per share of the securities in the offering is less than the greater
of book value or market value of our common stock and the proposed issuance
would result in the issuance of 20% or more of the common stock or voting power
of the Company before the issuance. Assuming immediate conversion of all of the
shares of Preferred Stock, the total number of Series A Conversion Shares would
be in excess of the 20% threshold. Therefore, we may not issue the Series A
Conversion Shares unless and until the issuance has been approved by our
shareholders.
PRIVATE PLACEMENT OF SERIES A PREFERRED STOCK.
In October 2003, we entered into Subscription Agreements with certain investors
pursuant to which we sold 881,732 shares of Series A Preferred Stock (the
"Preferred Shares") at a price of $38.00 per share in a private placement
transaction. We received proceeds of approximately $31.1 million in this
transaction, after payment of placement agent fees and other offering expenses.
Of these proceeds, we immediately used approximately $25.5 million to pay
current liabilities, and we presently intend to use the balance for general
working capital purposes.
Sanders Morris Harris Inc. acted as placement agent in connection with the
October 2003 private placement financing transaction. For their services as
placement agent, we paid Sanders Morris Harris a fee equal to 7% of our gross
proceeds from the financing ($2,345,400). We also paid for the out-of-pocket
expenses incurred by Sanders Morris Harris and all investors in the amount of
$45,000. In addition, we issued to Sanders Morris Harris a warrant to purchase
881,732 shares of our common stock at an exercise price of $4.65 per share. The
warrant has a term of 5 years. The warrant vests and becomes exercisable in full
on April 17, 2004.
We entered into a registration rights agreement with the purchasers of the
Preferred Shares. Pursuant to this registrant rights agreement, we agreed to
file a registration statement on Form S-3 registering the resale by the
investors of the Series A Conversion Shares and to keep the registration
statement effective until the later of one year or until all the Series A
Conversion Shares held by the investors may be sold by them pursuant to Rule 144
promulgated under the Securities Act of 1933. This registration rights agreement
also provides that if we do not register for resale the Series A Conversion
Shares within 60 days of the closing date (or 150 days, which may be extended
until April 14, 2004 in certain circumstances, in the event of a full review of
the registration statement by the Securities and Exchange Commission), then we
must pay each of the investors 1% of the per share purchase price paid by such
investor for each Preferred Share purchased for each month thereafter that the
investor cannot publicly sell the shares of Common Stock underlying the
Preferred Share. The expenses of such registration, other than selling expenses
(including broker's fees and commissions), will be borne by us.
REASONS FOR THE PRIVATE PLACEMENT.
Strengthening our working capital is one of the final steps in the restructuring
of our business, and will support the growth of our private label, trading
company model that fueled profits in the years prior to our Mexico manufacturing
initiative. We believe the private placement financing will allow us to maximize
growth
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opportunities that would otherwise be left in incubation. As previously
announced, we have entered into an exclusive distribution agreement with
Federated Stores for American Rag, Cie, and with Wet Seal for No Jeans. We also
manufacture Seven 7, exclusively for Express. Premier retailers have a need to
differentiate themselves from their competition, and we want to continue
building and improving our process in order to exceed the expectations of our
new and existing retail partners.
TERMS OF SERIES A PREFERRED STOCK.
Except as required by law, the Preferred Shares have no voting rights. The
Preferred Shares accrue dividends, commencing on March 1, 2004, at an annual
rate of 5% of the initial stated value of $38.00 per share, payable quarterly.
In the event of a liquidation, dissolution or winding-up of the Company, the
Preferred Shares will be entitled to receive, prior to any distribution on the
common stock, a distribution equal to the initial stated value of the Preferred
Shares plus all accrued and unpaid dividends.
If the shareholders approve the issuance of the Series A Conversion Shares, each
Preferred Share will be convertible, at the option of the holder, into 10 shares
of our common stock (as adjusted for stock dividends, combinations, splits or
similar events), for an aggregate of 8,817,320 shares of common stock. In the
event the shareholders approve the issuance of the Series A Conversion Shares,
each of the investors in the October 2003 private placement financing
transaction has agreed to promptly convert all Preferred Shares into common
stock. If the shareholders do not approve the issuance of the conversion shares
at the Special Meeting, the Preferred Shares will not be convertible into common
stock.
CERTAIN EFFECTS OF THE PROPOSAL.
The Board of Directors believes that the approval of the issuance of the Series
A Conversion Shares is in the best interests of the Company and the
shareholders. However, the following should be considered by a shareholder in
deciding how to vote upon the proposal.
DILUTION. If the issuance of the Series A Conversion Shares is approved by the
shareholders at the Special Meeting, the holders of the Preferred Shares would
immediately have the right to convert each Preferred Share into 10 shares of
common stock, or an aggregate of 8,817,320 shares of common stock. When issued,
the Series A Conversion Shares would represent approximately 32% of the
Company's outstanding shares of common stock, based upon the 18,597,443 shares
of our common stock outstanding as of October 31, 2003. As a result, following
conversion of the Preferred Shares and issuance of the Series A Conversion
Shares, our shareholders would experience substantial dilution in the percentage
of Company equity they own.
EFFECT OF ISSUANCE OF SERIES A CONVERSION SHARES BELOW MARKET PRICE. The
effective issuance price of the Series A Conversion Shares is $3.80 per share.
The issuance of the Series A Conversion Shares could depress the market price
of, and reduce trading activity in, our common stock by increasing the number of
shares outstanding. Such downward pressure on our stock price could encourage
short sales by certain investors that could place further pressure on the price
of our common stock.
PRINCIPAL EFFECTS OF NON-APPROVAL. If the issuance of the Series A Conversion
Shares is not approved, the Preferred Shares will not be convertible into common
stock. Commencing on March 1, 2004, the holders of the Preferred Shares will be
entitled to receive a dividend at an annual rate of 5%. We cannot pay a dividend
on our common stock unless all accrued dividends on the Preferred Shares have
been paid in full. Additionally, in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the
Preferred Shares will be entitled to receive approximately $33.5 million plus
accrued and unpaid dividends before any distributions are made to the holders of
our common stock.
BOARD RECOMMENDATION AND VOTE.
The approval of the issuance of the Series A Conversion Shares will require the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Special Meeting. The Board of Directors
is of the opinion that the issuance of the Series A Conversion Shares is in the
best interests of the Company and recommends a vote for the approval of the
issuance of the Series A Conversion Shares. All Proxies will be voted to
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approve the issuance of the Series A Conversion Shares unless a contrary vote is
indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
ISSUANCE OF 8,817,320 SHARES OF COMMON STOCK UPON CONVERSION OF THE SERIES A
PREFERRED STOCK.
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ITEM 2: AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED SHARES OF COMMON STOCK
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Item 2 is the approval of an amendment to our Amended and Restated Articles of
Incorporation to increase the number of shares of our common stock authorized
for issuance from 35,000,000 to 100,000,000.
Our Board of Directors has approved an amendment (the "Amendment") to our
Amended and Restated Articles of Incorporation (the "Articles of Incorporation")
that will increase the aggregate number of shares of common stock authorized for
issuance from 35,000,000 to 100,000,000 shares. The complete text of the form of
the Amendment is set forth as Appendix "A" to this Proxy Statement. The Board of
Directors is submitting the Amendment to the shareholders for approval at the
Special Meeting.
The additional shares of common stock would become part of our existing class of
common stock, and the additional shares, when issued, would have the same rights
and privileges as the shares of common stock now issued. There are no preemptive
rights relating to the common stock.
The Articles of Incorporation presently authorize the issuance of 35,000,000
shares of common stock and 2,000,000 shares of preferred stock. Of the
35,000,000 presently authorized shares of common stock, 18,597,443 shares were
issued and outstanding on October 31, 2003. Of the 2,000,000 shares of presently
authorized preferred stock, 1,000,000 shares have been designated Series A
Preferred Stock and, of which 881,732 were issued and sold to investors in a
private placement financing transaction as described in Item 1 of this Proxy
Statement. In addition, excluding those shares of common stock that may be
issued pursuant to the conversion of the Series A Preferred Stock, an aggregate
of 11,381,732 shares of common stock have been reserved for issuance as of the
record date pursuant to outstanding options and warrants and under the Tarrant
Apparel Group Employee Incentive Plan. Accordingly, only 5,020,825 shares of
common stock remain available for the conversion of the Preferred Shares and
other corporate purposes. We will require 8,817,320 shares of common stock
available for issuance upon conversion of the outstanding Preferred Shares
alone, which exceeds the number of share available for issuance under the
Articles of Incorporation.
THE OCTOBER 2003 FINANCING TRANSACTION.
As described in Item 1 above, we entered into Subscription Agreements in October
2003, pursuant to which we sold 881,732 Preferred Shares to certain investors in
a private placement transaction. We received proceeds of approximately $31.1
million, after payment of placement agent fees and other offering expenses, from
the sale of the Preferred Shares.
Subject to prior shareholder approval, each Preferred Share will be convertible
into 10 shares of common stock, for an aggregate of 8,817,320 shares of common
stock. This exceeds the number of shares of common stock that remain available
under the Articles of Incorporation for issuance by us, after taking into
account the number of shares reserved for issuance upon exercise of outstanding
stock options and warrants and under the Employee Incentive Plan. Consequently,
if the shareholders do not approve the Amendment at the Special Meeting, we will
not have a sufficient number of authorized shares of common stock to issue all
of the Series A Conversion Shares and maintain the required shares reserved for
issuance pursuant to outstanding options and warrants and under our Employee
Incentive Plan. As a result, we may not be able to meet our obligation to issue
shares upon exercise of outstanding options and warrants and may be prevented
from granting additional options to employees under the Employee Incentive Plan.
ADDITIONAL REASONS FOR THE AUTHORIZED SHARE INCREASE.
In addition to providing a sufficient number of available shares of common stock
for use in connection with the conversion of the Preferred Shares and upon
exercise of options and warrants, the Board of Directors believes that the
proposed increase in the authorized shares of common stock is in the best
interests of the Company and its shareholders and believes that it is advisable
to authorize such additional shares and have them available in connection with
possible future transactions, such as financings, strategic alliances, corporate
mergers, acquisitions, possible funding of new product programs or businesses
and other uses not presently determinable and as may be deemed to be feasible
and in our best interests. In addition, the Board of Directors believes that it
is desirable for the Company to have the flexibility to issue shares of common
stock without further shareholder action, except as otherwise provided by law.
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AMENDMENT.
If the Amendment is approved, the introductory paragraph of Article Three of the
Articles of Incorporation will read as follows:
"THREE: This corporation is authorized to issue two
classes of shares of stock designated, respectively,
"Common Stock" and "Preferred Stock." The number of
shares of Common Stock authorized to be issued is
100,000,000 and the number of shares of Preferred
Stock authorized to be issued is 2,000,000, all of
which shall be without par value."
The only change in Article Three which will be effected if the proposal is
approved is the change to the one number set forth in bold face type above.
Presently, Article Three provides that the number of shares of common stock that
we may issue is 35,000,000. All other provisions of Article Three will remain
unchanged.
CERTAIN EFFECTS OF THE AMENDMENT.
The Board of Directors believes that approval of the Amendment is in the best
interests of the Company and our shareholders. However, the following should be
considered by a shareholder in deciding how to vote upon the Amendment.
If the Amendment is approved, the additional authorized shares would be
available for issuance by the Board of Directors in connection with the
conversion of the Preferred Shares, upon exercise of options and warrants, and
for any proper corporate purpose and for such consideration as the Board of
Directors may determine at any time without further shareholder approval except
as otherwise required by applicable law or Nasdaq listing rules. If the
Amendment is approved, the shareholders could experience substantial dilution in
the percentage of our equity they own upon issuance of additional shares by the
Board of Directors. The issuance of such additional shares might be
disadvantageous to current shareholders in that any additional issuances would
potentially reduce per share dividends, if any. Shareholders should consider,
however, that the possible impact upon dividends is likely to be minimal in view
of the fact that we have never paid dividends, have never adopted any policy
with respect to the payment of dividends on common stock and do not intend to
pay any cash dividends on common stock in the foreseeable future. We instead
intend to retain earnings, if any, for use in financing growth and additional
business opportunities.
Shareholders should further be aware that failure to approve the Amendment will
cause us to be unable to meet our obligations to issue shares of common stock
upon conversion of the Preferred Shares (if approved by the shareholders) and
upon exercise of outstanding options and warrants.
The increase in authorized shares is not being proposed as a means of preventing
or dissuading a change in control or takeover of the Company. However, the
issuance of the additional shares of common stock in a transaction could have an
anti-takeover effect. Additional shares of common stock could be issued (within
the limits imposed by applicable law) in one or more transactions that could
make a change in control or takeover more difficult. For example, we could issue
additional shares for the purpose of diluting the stock ownership or voting
rights of persons seeking to obtain control of the Company. Consequently, the
Amendment, if approved, would strengthen the position of the Board of Directors
and might make the removal of the Board of Directors more difficult, even if the
removal would be generally beneficial to our shareholders. The authorization to
issue the additional shares of common stock would provide the Board of Directors
with a capacity to negate the efforts of unfriendly tender offerors through the
issuance of securities to others who are friendly or desirable to the Board of
Directors.
The proposed amendment does not change the terms of our common stock, which does
not have preemptive rights. The additional shares of common stock for which
authorization is sought will have the same voting rights, the same rights to
dividends and distributions, and will be identical in all other respects to the
shares of our common stock now authorized.
EFFECTIVE DATE OF THE AMENDMENT.
If the Amendment is approved by the requisite vote of our shareholders, the
Amendment will be effective upon the close of business on the date of filing of
the Certificate of Amendment of the Articles of Incorporation with the
California Secretary of State, which filing is expected to take place shortly
after the Special Meeting. However, the exact timing of the filing of the
Certificate of Amendment will be determined by the Board of Directors based upon
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its evaluation as to when such action will be most advantageous to us and our
shareholders, and the Board of Directors reserves the right to delay filing the
Certificate of Amendment for up to twelve months following shareholder approval
thereof. In addition, the Board of Directors reserves the right, notwithstanding
shareholder approval and without further action by the shareholders, to elect
not to proceed with the Amendment if, at any time prior to filing the
Certificate of Amendment, the Board of Directors, in its sole discretion,
determines that it is no longer in the best interests of the Company and the
shareholders. If this proposal is not approved by the shareholders, then the
Certificate of Amendment will not be filed.
BOARD RECOMMENDATION AND VOTE.
The approval of the amendment to the Articles of Incorporation to increase the
shares of common stock authorized for issuance from 35,000,000 to 100,000,000
will require the affirmative vote of a majority of our outstanding shares of
common stock. The Board of Directors is of the opinion that the Amendment to the
Articles of Incorporation is in the best interests of the Company and recommends
a vote for the approval of the Amendment. All Proxies will be voted to approve
the Amendment unless a contrary vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK.
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ITEM 3: APPROVAL OF EXECUTIVE STOCK OPTION GRANT
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Item 3 is the approval of the grant to Barry Aved of options to purchase 400,000
shares of our common stock. The Board of Directors has approved, contingent upon
approval by our shareholders at the Special Meeting, the grant of options to
purchase 400,000 shares of common stock to Barry Aved, our President. The Board
of Directors is submitting the proposal to approve the stock option grant to our
President to the shareholders for approval at the Special Meeting.
TERMS OF OPTION GRANT.
The Compensation Committee of our Board of Directors approved the grant to Barry
Aved, our President, of options to purchase 400,000 shares each of the Company's
common stock (the "Executive Options"), subject to approval of the Executive
Options by the shareholders at the Special Meeting. The exercise price of the
Executive Options will be equal to the greater of $3.65 and the closing price of
our common stock on the day the grant is approved by the shareholders. As of
October 28, 2003, the closing price of our common stock as reported on the
Nasdaq National Market System was $4.10 per share. So long as Mr. Aved remains
employed with the Company, the Executive Options will vest and become
exercisable in four installments of 25,000 shares on the first anniversary of
the date of grant, and 125,000 shares on each of the second, third and fourth
anniversaries of the date of grant. These Executive Options will expire on the
tenth anniversary of the date of grant. Mr. Aved has served on our Board of
Directors since December 1996, and previously served as our President from
September 1999 until March 2000. On September 17, 2003, Mr. Aved was appointed
as our President. The Executive Options are granted to Mr. Aved in consideration
of his services as President of the Company.
REASON FOR THE PROPOSAL.
Our common stock is listed on the Nasdaq Stock Market's National Market System.
The continued listing requirements of the Nasdaq Stock Market's National Market
System generally require us to obtain shareholder approval prior to the issuance
of a stock option or stock purchase plan pursuant to which stock may be acquired
by officers, directors, employees or consultants, subject to certain limited
exceptions. Therefore, in order to remain in compliance with the Nasdaq listing
standards, we may not grant the Executive Options unless and until the grant has
been approved by our shareholders. If the shareholders do not approve the
Executive Options at the Special Meeting, the Executive Options will not be
granted. The Company believes it is in the best interest of the Company and its
shareholders for the shareholders to approve the Executive Options so that the
options will be issued.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
The following is a general discussion of the principal federal income tax
consequences of the Executive Options grant.
CONSEQUENCES TO OPTIONEES. The optionee will recognize no income at the time
Executive Options are granted. In general, at the time shares are issued to the
optionee pursuant to exercise of the Executive Options, the optionee will
recognize income taxable at ordinary income tax rates equal to the excess of the
fair market value of the shares on the date of exercise over the exercise price
of such shares. The optionee will recognize gain or loss on the subsequent sale
of shares acquired upon exercise of the Executive Options in an amount equal to
the difference between the selling price and the tax basis of the shares, which
will include the price paid plus the amount included in the optionee's taxable
income by reason of the exercise of the Executive Options. Provided the shares
are held as a capital asset, any gain or loss resulting from a subsequent sale
will be short-term or long-term capital gain or loss depending upon the length
of time the shares have been held.
CONSEQUENCES TO COMPANY. We generally will be entitled to a deduction for United
States federal income tax purposes in the same year and in the same amount as
the optionee is considered to have recognized income taxable at ordinary income
tax rates in connection with the exercise of Executive Options. In certain
instances, we may be denied a deduction for compensation attributable to the
Executive Options granted to an optionee to the extent that such compensation
exceeds $1 million in a given year.
10
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.
The following table sets forth certain information regarding our equity
compensation plans as of December 31, 2002.
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND FUTURE ISSUANCE UNDER EQUITY
WARRANTS AND RIGHTS RIGHTS COMPENSATION PLANS
----------------------- ------------------------- ----------------------------
Equity compensation
plans approved by
security holders 6,376,487 $8.89 1,723,513
Equity compensation
plans not approved by
security holders -- -- --
----------------------- ------------------------- ----------------------------
Total 6,376,487 $8.89 1,723,513
BOARD RECOMMENDATION AND VOTE.
The shareholders will be asked at the Special Meeting to consider and act upon a
proposal to approve the grant of such options. The proposal to approve the grant
of such options requires the affirmative vote of a majority of the shares of
common stock represented and entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
EXECUTIVE STOCK OPTION GRANT.
11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to each
of the other four most highly compensated officers whose compensation exceeded
$100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to the Company in all
capacities for each of the three years ended December 31 indicated below.
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ----------------------------
OTHER ANNUAL NUMBER OF ALL OTHER
NAME FISCAL YEAR SALARY BONUS COMPENSATION SECURITIES COMPENSATION
---- ENDED ------ ----- ------------ UNDERLYING ------------
PRINCIPAL POSITION(1) DECEMBER 31, ($) ($) ($)(2) OPTIONS ($)(3)
--------------------- ------------ --- --- --- ------- ---
Gerard Guez............. 2002 450,000 -- -- 1,000,000 50,000
CEO and Chairman of 2001 450,000 -- -- -- 50,000
the Board of Directors 2000 469,234 -- -- -- 50,000
Todd Kay(4) ............ 2002 450,000 -- -- 1,000,000 50,000
President and Vice 2001 450,000 -- -- -- 50,000
Chairman of Board 2000 469,234 -- -- -- 50,000
Eddy Yuen(5)............ 2002 350,000 45,000 -- 50,000 --
President of Fashion 2001 191,729 39,586 88,541(6) 100,000 8,849
Resource (TCL), Inc. 2000 191,729 116,129 28,588(7) -- 8,849
Karen Wasserman......... 2002 345,000 -- -- -- --
Executive Vice President 2001 334,768 -- -- 50,000 --
and General 2000 338,154 -- -- 5,000 --
Merchandising Manager
Patrick Chow(8)......... 2002 220,000 75,000 -- -- --
Chief Financial 2001 160,000 30,000 -- -- --
Officer 2000 160,000 -- -- -- --
----------
(1) For a description of the employment contracts between certain officers
and the Company, see "Employment Contracts," below.
(2) Certain of the Company's executive officers receive personal benefits
in addition to salary and cash bonuses, including car allowances,
living and relocation expenses and director fees. The aggregate amount
of such personal benefits does not exceed the lesser of $50,000 or 10%
of the total annual salary and bonus reported for the officer.
(3) Represents the Company's contribution to defined contribution plans or,
in the case of Messrs. Guez and Kay, contributions by the Company to a
deferred compensation plan.
(4) Mr. Kay resigned as President as of September 17, 2003.
(5) Mr. Yuen served as the Company's Chief Executive Officer from October
2001 through March 2003.
(6) During Mr. Yuen's stay in Mexico in fiscal 2001, Mr. Yuen's family in
the U.S. received a living allowance of $36,000, car allowance of
$12,000, house rental allowance of $26,000, medical insurance allowance
of $6,000 and utilities allowance of $15,000.
(7) During Mr. Yuen's stay in Mexico in fiscal 2000, Mr. Yuen's family in
the U.S. received a living allowance of $12,000, house rental allowance
of $9,000 and medical insurance and utilities allowance of $7,000.
(8) Mr. Chow was appointed Chief Financial Officer on January 7, 2002.
12
OPTION GRANTS IN FISCAL 2002
The following table sets forth certain information regarding the grant of stock
options made during fiscal 2002 to the Named Executive Officers.
PERCENT OF
TOTAL
OPTIONS POTENTIAL
NUMBER OF GRANTED TO REALIZABLE VALUE
SECURITIES EMPLOYEES AT ASSUMED
UNDERLYING IN EXERCISE RATE OF STOCK PRICE
OPTIONS FISCAL OR BASE EXPIRATION APPRECIATION FOR
NAME GRANTED YEAR(3) PRICE(4) DATE OPTION TERM(5)
---- ------------- ---------- -------- ---------- ---------- ------------
5% 10%
-- ---
Gerard Guez......... 1,000,000(1) 32.7% $5.50 5/15/12 3,458,920 4,508,920
Todd Kay............ 1,000,000(1) 32.7% $5.50 5/15/12 3,358,920 4,508,920
Eddy Yuen........... 50,000(2) 1.6% $5.08 1/31/12 172,946 225,446
----------
(1) The stock options vest and become exercisable in four equal
installments on each of November 11, 2002, May 15, 2003, May 15, 2004
and May 15, 2005.
(2) These stock options vest and become exercisable in four equal
installments on each of January 31, 2002, July 31, 2002, January 31,
2003 and January 31, 2004.
(3) Options covering an aggregate of 3,054,000 shares were granted to
employees during fiscal 2002.
(4) The exercise price and tax withholding obligations related to exercise
may be paid by delivery of already owned shares, subject to certain
conditions.
(5) The potential realizable value is based on the assumption that the
common stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
amounts are calculated pursuant to applicable requirements of the SEC
and do not represent a forecast of the future appreciation of the
common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during fiscal 2002,
the number of shares of common stock underlying stock options held at fiscal
year-end and the value of options held at fiscal year-end based upon the last
reported sales price of the common stock on The Nasdaq National Market on
December 31, 2002 ($4.09 per share).
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 2002 DECEMBER 31, 2002
-------- -------- ----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Gerard Guez.......... -- -- 1,016,668 750,000 -- --
Todd Kay............. -- -- 683,332 750,000 -- --
Eddy Yuen............ -- -- 204,000 87,500 -- --
Karen Wasserman...... -- -- 85,000 25,000 -- --
Patrick Chow......... -- -- 32,000 30,000 -- --
DIRECTORS' COMPENSATION
We pay to each director who is not employed by the Company $4,000 per month for
attending meetings of the Board of Directors and committees of the Board of
Directors, and reimburses such person for all expenses incurred by him in his
capacity as a director of the Company. In addition, the Chairman of each
committee receives $2,000
13
per year for such service. The Board of Directors may modify such compensation
in the future. In addition, each director not employed by the Company, upon
joining the Board of Directors, will receive an option to purchase 20,000 shares
of our common stock and, thereafter, an option to purchase 4,000 shares of
common stock on the date of each annual meeting at which such person is
reelected to serve as a director. Such options will have an exercise price equal
to the fair market value of such shares on the date of grant, become exercisable
so long as the recipient continues to serve as a director in four equal annual
installments commencing on the first anniversary of the grant thereof, and
expire on the tenth anniversary of the date of grant.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment contracts with the following Named
Executive Officers.
Pursuant to an employment contract dated as of January 1, 1998, as amended on
January 10, 2000 and as of April 1, 2003 (the "Guez Agreement"), Gerard Guez has
been employed as the Chairman of the Board and Chief Executive Officer of the
Company. The Guez Agreement initially provided that Mr. Guez receive an annual
salary of $1,000,000 and, provided the Company reports specified amounts of
pre-tax income as set forth in the agreement, an annual bonus of up to
$2,000,000 and an option to purchase up to 666,668 shares of common stock. The
Guez Agreement was amended on January 10, 2000 to provide for a reduction of the
annual base salary to $500,000 and to extend the expiration of the agreement
from December 31, 2002 to March 31, 2003. As of April 1, 2003, the Guez
Agreement was further amended to extend the agreement until March 31, 2006. As
amended, the Guez Agreement currently provides for Mr. Guez to receive an annual
salary of $500,000 for the period from April 1, 2003 through March 31, 2004,
$750,000 for the period from April 1, 2004 through March 31, 2005, and
$1,000,000 for the period from April 1, 2005 through March 31, 2006, as well as
an annual bonus based on a percentage of the Company's pre-tax income for the
period. Mr. Guez resigned as Chief Executive Officer in October 2001, but was
re-appointed to this position in March 2003.
Pursuant to an employment contract dated as of January 1, 1998, as amended on
January 10, 2000 and as of April 1, 2003 (the "Kay Agreement"), Todd Kay has
been employed as the President of the Company. The Kay Agreement initially
provided that Mr. Kay receive an annual salary of $1,000,000 and, provided the
Company reports specified amounts of pre-tax income as set forth in the
agreement, an annual bonus of up to $2,000,000 and an option to purchase up to
333,332 shares of common stock. The Kay Agreement was amended on January 10,
2000 to provide for a reduction of the annual base salary to $500,000 and to
extend the expiration of the agreement from December 31, 2002 to March 31, 2003.
As of April 1, 2003, the Kay Agreement was further amended to extend the
agreement until March 31, 2006. As amended, the Kay Agreement currently provides
for Mr. Kay to receive an annual salary of $500,000 for the period from April 1,
2003 through March 31, 2004, $750,000 for the period from April 1, 2004 through
March 31, 2005, and $1,000,000 for the period from April 1, 2005 through March
31, 2006, as well as an annual bonus based on a percentage of the Company's
pre-tax income for the period. Mr. Kay resigned as President in September 2003,
but continues to serve as Vice Chairman of the Board of Directors.
Pursuant to an employment contract dated January 7, 2002, as amended effective
January 1, 2003 (the "Chow Contract"), Patrick Chow has been employed as Chief
Financial Officer of the Company. The Chow Contract provides for an annual base
salary of $250,000. The contract will be subject to automatic renewal annually
and either party must give 60 days notice of intent to terminate employment
prior to the annual renewal date.
EMPLOYEE BENEFIT PLANS
The Company has adopted the Tarrant Apparel Group Employee Incentive Plan (the
"Employee Incentive Plan"). Up to 5,100,000 shares of our common stock are
authorized to be issued pursuant to the Employee Incentive Plan. The Employee
Incentive Plan currently provides for the issuance of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock and
other performance-based benefits. The purpose of the Employee Incentive Plan is
to enable the Company to attract, retain and motivate officers, directors,
employees and independent contractors by providing for performance-based
benefits. The Employee Incentive Plan is administered by the Compensation
Committee of the Board of Directors. As of December 31, 2002, there were
3,376,487 shares of our common stock subject to outstanding options, 1,723,513
shares (subject to adjustment to prevent dilution) available for awards granted
under the Employee Incentive Plan.
14
In 1994, the Company adopted a Profit Sharing 401(k) Plan (the "Profit Sharing
Plan") which is intended to be qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended. To be eligible, an employee must have been
employed by the Company for at least one year. The Profit Sharing Plan permits
employees who have completed one year of service to defer from 1% to 15% of
their annual compensation into the Profit Sharing Plan. Additional annual
contributions may be made at the discretion of the Company, and a 50% (100%
effective July 1, 1995) matching contribution may be made by the Company up to a
maximum of 6% (5% effective July 1, 1995) of a participating employee's annual
compensation. Contributions made by the Company vest according to a schedule set
forth in the Profit Sharing Plan.
In 1992, Tarrant HK adopted a National Mutual Central Provident Fund (the
"Provident Fund") which has been approved under Section 87A of the Inland
Revenue Ordinance by the Inland Revenue Department of Hong Kong. To be eligible,
an employee must have been employed by Tarrant HK for at least one service to
defer 5% of their annual compensation into the Provident Fund. Annual matching
contributions are made by Tarrant HK. Contributions made by Tarrant HK vest
according to a schedule set forth in the Provident Fund.
For 2003, the Company adopted an Incentive Compensation Plan for executives and
employees based on specific goals and criteria. If the Company is able to reach
certain revenue targets in 2003, incentive payments will be distributed, but the
amounts will depend in part on individual performance as well.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The Compensation Committee of our Board of Directors currently consists of
Messrs. Koffman, Mizrachi and Simbal, Russ and Farouze. Mr. Aved also served as
a member of the Compensation Committee until September 2003. None of these
individuals was an officer or employee of the Company at any time during fiscal
2002. No current executive officer of the Company has served as a member of the
board of directors or compensation committee of any entity for which a member of
our Board of Directors or Compensation Committee has served as an executive
officer.
15
PRINCIPAL SHAREHOLDERS
The following table sets forth as of October 15, 2003, unless otherwise
indicated, certain information relating to the ownership of our common stock by
(i) each person known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of our common stock, (ii) each of the
Company's directors, (iii) each of our Chief Executive Officer and other four
most highly compensated executive officers, and (iv) all of the Company's
directors, Chief Executive Officer and other four most highly compensated
executive officers as a group. Except as may be indicated in the footnotes to
the table and subject to applicable community property laws, each such person
has the sole voting and investment power with respect to the shares owned. The
address of each person listed is in care of the Company, 3151 East Washington
Blvd., Los Angeles, CA 90023, unless otherwise set forth below such person's
name.
NAME AND ADDRESS NUMBER OF SHARES OF PERCENT (1)
---------------- COMMON STOCK -----------
BENEFICIALLY OWNED (1)
----------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gerard Guez, CEO & Chairman of Board of Directors................ 6,861,519 (2) 34.5%
Todd Kay, Vice Chairman of Board of Directors.................... 3,499,999 (3) 17.9%
Karen Wasserman, Executive VP - General Merchandising Manager.... 130,000 (4) *
Barry Aved, President & Director................................. 82,000 (5) *
Patrick Chow, CFO & Director..................................... 32,000 (6) *
Joseph Mizrachi, Director........................................ 11,000 (6) *
Mitchell Simbal, Director........................................ 10,000 (6) *
Milton Koffman, Director......................................... 10,000 (6) *
Larry Russ, Director............................................. - -
Stephane Farouze, Director....................................... - -
5% HOLDERS:
Rosa Lisette Nacif Benavides..................................... 3,000,000 (7) 16.1%
Edgar Allen #231, Col. Polanco, C.P. 11550, Mexico, D.F.
Kamel Nacif Borge................................................ 2,724,000 (8) 13.9%
Edgar Allen #231, Col. Polanco, C.P. 11550, Mexico, D.F.
Jamil Textil, S.A. de C.V........................................ 1,724,000 (9) 9.3%
Edgar Allen #231, Col. Polanco, C.P. 11550, Mexico, D.F.
Lord, Abbett & Co................................................ 1,162,234 (10) 6.2%
90 Hudson Street, Jersey City, NJ 07302
Emerald Point Inc................................................ 1,019,093 (11) 5.5%
P.O. Box CR-54697, Nassau, Bahamas
Directors and officers as a group (10 persons)................... 10,636,518 (12) 50.7%
* Less than one percent.
----------
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to
vote or the power to dispose of the shares). In addition, shares are
deemed to be beneficially owned by a person if the person has the right
to acquire the shares (for example, upon exercise of an option) within
60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially
owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares
of any person as shown in this table does not necessarily reflect the
person's actual ownership or voting power with respect to the number of
shares of common stock actually outstanding at October 15, 2003.
Percentage ownership is based upon 18,597,443 shares of common stock
issued and outstanding as of October 15, 2003.
(2) Includes 461,518 shares held by GKT Investments, LLC, a Delaware
limited liability company owned 100% by Mr. Guez and 1,266,668 shares
of common stock reserved for issuance upon exercise of stock options
which are or will become exercisable on or prior to December 14, 2003.
Mr. Guez has pledged an aggregate of
16
5,494,851 of such shares to financial institutions to secure the
repayment of loans to Mr. Guez or corporations controlled by Mr. Guez.
(3) Includes 933,332 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to December 14, 2003. Mr. Kay has pledged an aggregate of
1,015,000 of such shares to financial institutions to secure the
repayment of loans to Mr. Kay or corporations controlled by the Mr.
Kay.
(4) Includes 85,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to December 14, 2003.
(5) Includes 22,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to December 14, 2003.
(6) Consists of shares of common stock reserved for issuance upon exercise
of stock options, which are or will become exercisable on or prior to
December 14, 2003.
(7) As disclosed on Schedule 13G as filed on June 24, 2003.
(8) Includes 1,724,000 shares held by Jamil Textil, S.A. de C.V. ("Jamil
Textil") and 1,000,000 shares issuable upon exercise of stock options
held by Mr. Nacif which are or will become exercisable on or prior to
December 14, 2003. Mr. Nacif is a principal shareholder and President
of Jamil Textil and in such role may be deemed to beneficially own
shares held by Jamil Textil. Mr. Nacif disclaims beneficial ownership
of such shares except to the extent of his pecuniary interest therein.
Certain information regarding the beneficial ownership of Mr. Nacif and
Textil is taken from a Schedule 13G as filed on March 27, 2003.
(9) Information regarding the beneficial ownership of Textil is taken from
a Schedule 13G as filed on March 27, 2003.
(10) As disclosed on Schedule 13G/A filed on January 28, 2002.
(11) As disclosed on Schedule 13D filed on September 13, 2002.
(12) Includes 2,370,000 shares of common stock reserved for issuance upon
exercise of stock options that are or will become exercisable on or
prior to December 14, 2003.
The information as to shares beneficially owned has been individually furnished
by the respective directors, executive officers, and other shareholders, or
taken from documents filed with the SEC.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 2004 Annual Meeting of
Shareholders for inclusion in the Company's Proxy Statement and Proxy form
relating to such Annual Meeting must submit such proposal to us at our principal
executive offices by December 26, 2003. In addition, in the event a shareholder
proposal is not received by us by March 11, 2004, the Proxy to be solicited by
the Board of Directors for the 2004 Annual Meeting will confer discretionary
authority on the holders of the Proxy to vote the shares if the proposal is
presented at the 2004 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 2004 Annual Meeting is
advanced or delayed more than 30 days from the date of the 2003 Annual Meeting,
shareholder proposals intended to be included in the proxy materials for the
2004 Annual Meeting must be received by us within a reasonable time before we
begin to print and mail the proxy materials for the 2004 Annual Meeting. Upon
any determination by us that the date of the 2004 Annual Meeting will be
advanced or delayed by more than 30 days from the date of the 2003 Annual
Meeting, we will disclose such change in the earliest possible Quarterly Report
on Form 10-Q.
SOLICITATION OF PROXIES
It is expected that the solicitation of Proxies will be by mail. We will bear
the cost of solicitation by management. 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.
17
ANNUAL REPORT ON FORM 10-K
OUR ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2002, WILL BE MADE AVAILABLE
TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR RELATIONS,
TARRANT APPAREL GROUP, 3151 EAST WASHINGTON BOULEVARD, LOS ANGELES, CALIFORNIA
90023.
ON BEHALF OF THE BOARD OF DIRECTORS
------------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
3151 East Washington Boulevard
Los Angeles, California 90023
______________, 2003
18
APPENDIX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
TARRANT APPAREL GROUP
The undersigned Gerard Guez and Patrick Chow certify that:
1. They are the Chief Executive Officer and Chief Financial Officer,
respectively, of Tarrant Apparel Group, a California corporation.
2. ARTICLE THREE of the Articles of Incorporation of this corporation is
replaced in its entirety with the following:
"THREE: This corporation is authorized to issue two classes of
shares of stock designated, respectively, "Common Stock" and
"Preferred Stock." The number of shares of Common Stock authorized
to be issued is 100,000,000 and the number of shares of Preferred
Stock authorized to be issued is 2,000,000, all of which shall be
without par value."
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of the shareholders in accordance with
Section 902 of the California Corporations Code. The total number of
outstanding shares of the corporation is 18,597,443 shares of Common
Stock and 881,732 shares of Series A Convertible Preferred Stock. The
number of shares voting in favor of the amendment equaled or exceeded
the vote required. The percentage vote required was more than 50% of
the Common Stock.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
DATE: _____________________
-------------------------------------
Gerard Guez, Chief Executive Officer
-------------------------------------
Patrick Chow, Chief Financial Officer
TARRANT APPAREL GROUP
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of TARRANT APPAREL GROUP, a California
corporation (the "Company"), hereby nominates, constitutes and appoints Gerard
Guez and Patrick Chow, 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 Special Meeting of Shareholders of the Company, to be held on December 4,
2003, 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 approve the issuance of up to 8,817,320 shares of common
stock issuable upon conversion of the outstanding shares of Series
A Preferred Stock.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 2. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the authorized number of
shares common stock from 35,000,000 to 100,000,000.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 3. To approve the grant of options to purchase 400,000 shares of common
stock to our President.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Special
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 SPECIAL 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 Special
Meeting and accompanying Proxy Statement dated November ___, 2003, relating to
the Special Meeting.
Dated:___________________________, 2003
Signature:_____________________________
Signature:_____________________________
Signature(s) of Shareholder(s)
(See Instructions Below)
The Signature(s) hereon should
correspond exactly with the name(s) of
the Shareholder(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 Special Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE