<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
TARRANT APPAREL GROUP
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 1, 1998
----------------
TO THE SHAREHOLDERS OF TARRANT APPAREL GROUP:
Notice is hereby given that the annual meeting (the "Meeting") of the
shareholders of Tarrant Apparel Group (the "Company") will be held at 11355
West Olympic Boulevard, Los Angeles, California 90064, on Friday, May 1, 1998
at 10:00 a.m. (California time) for the following purposes:
1. ELECTION OF DIRECTORS. To elect six persons to the Board of Directors of
the Company, three of whom shall serve until the next annual meeting of
shareholders (to be held in the year 1999) and until their successors have
been elected and qualified and three of whom shall serve until the annual
meeting of shareholders to be held in the year 2000 and until their
successors have been elected and qualified. The following persons are the
Board of Directors' nominees:
<TABLE>
<S> <C>
Barry S. Aved Mark B. Kristof
Gerard Guez James R. Miller
Todd Kay Karen S. Wasserman
</TABLE>
2. RATIFICATION OF 1998 EMPLOYEE INCENTIVE AWARDS. To ratify the grant of 1998
awards to certain executive officers pursuant to the Employee Incentive
Plan.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 1998.
4. OTHER BUSINESS. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
Only persons who are shareholders of record (the "Shareholders") at the
close of business on March 16, 1998 are entitled to notice of and to vote in
person or by proxy at the Meeting or any adjournment thereof.
The Proxy Statement which accompanies this Notice contains additional
information regarding the proposals to be considered at the Meeting, and
Shareholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, proxies are being solicited by
and on behalf of the Board of Directors of the Company. All proposals set
forth above are proposals of the Company. It is expected that these materials
first will be mailed to Shareholders on or about March 20, 1998.
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU THEN MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE. IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS,
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
/s/ Gerard Guez
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated: March 20, 1998
Los Angeles, California
<PAGE>
TARRANT APPAREL GROUP
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(213) 780-8250
----------------
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
MAY 1, 1998
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors") of Tarrant
Apparel Group (the "Company") for use at the 1998 annual meeting (the
"Meeting") of the shareholders of the Company to be held on Friday, May 1,
1998, at 11355 West Olympic Boulevard, Los Angeles, California 90064, at 10:00
a.m. (California time) and at any adjournment thereof. Gerard Guez and Todd
Kay, the designated proxyholders (the "Proxyholders"), are members of the
Company's management. Only shareholders of record (the "Shareholders") on
March 16, 1998 (the "Record Date") are entitled to notice of and to vote in
person or by proxy at the Meeting or any adjournment thereof. This Proxy
Statement and the enclosed proxy card (the "Proxy") will be first mailed to
Shareholders on or about March 20, 1998.
MATTERS TO BE CONSIDERED
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect six persons to the Board of Directors of
the Company, three of whom shall serve until the next annual meeting of
shareholders (to be held in the year 1999) and until their successors have
been elected and qualified and three of whom shall serve until the annual
meeting of shareholders to be held in the year 2000 and until their
successors have been elected and qualified. The following persons are the
Board of Directors' nominees:
<TABLE>
<S> <C>
Barry S. Aved Mark B. Kristof
Gerard Guez James R. Miller
Todd Kay Karen S. Wasserman
</TABLE>
2. RATIFICATION OF 1998 EMPLOYEE INCENTIVE AWARDS. To ratify the grant of 1998
awards to certain executive officers pursuant to the Employee Incentive
Plan.
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 1998.
4. OTHER BUSINESS. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
COST OF SOLICITATION OF PROXIES
This Proxy solicitation is made by the Board of Directors of the Company and
the Company will bear the costs of this solicitation, including the expense of
preparing, assembling, printing and mailing this Proxy Statement and any other
material used in this solicitation of Proxies. The solicitation of Proxies
will be made by mail and may be supplemented by telephone or other personal
contact to be made without special compensation by regular officers and
employees of the Company. If it should appear desirable to do so to ensure
adequate representation at the Meeting, officers and regular employees may
communicate with Shareholders, banks, brokerage houses, custodians, nominees
and others, by telephone, facsimile transmissions, telegraph, or in person to
request that Proxies be furnished. The Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding proxy materials to their principals. The total
estimated cost of the solicitation of Proxies is $6,000.
<PAGE>
OUTSTANDING SECURITIES AND VOTING RIGHTS; REVOCABILITY OF PROXIES
The authorized capital of the Company consists of (i) 10,000,000 shares of
common stock ("Common Stock"), of which 6,706,209 shares were issued and
outstanding on the Record Date and (ii) 2,000,000 shares of Preferred Stock,
none of which were issued and outstanding on the Record Date. A majority of
the outstanding shares of the Common Stock constitutes a quorum for the
conduct of business at the Meeting. Abstentions will be treated as shares
present and entitled to vote for purposes of determining the presence of a
quorum.
Each Shareholder is entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his or her name on the books of the Company
as of the Record Date on any matter submitted to the Shareholders.
The Company's Restated Articles of Incorporation does not authorize
cumulative voting. In the election of directors, the candidates receiving the
highest number of votes will be elected. Each other proposal described herein
requires the affirmative vote of a majority of the outstanding shares of
Common Stock present in person or represented by proxy and entitled to vote at
the Meeting. Accordingly, broker non-votes and abstentions from voting on any
matter, other than the election of directors, will have the effect of a vote
"AGAINST" such matter.
Of the shares of Common Stock outstanding on the Record Date, 4,460,000
shares of Common Stock (or approximately 66.5% of the issued and outstanding
shares of Common Stock) were owned by directors and executive officers of the
Company. Such persons have informed the Company that they will vote "FOR" the
election of the nominees to the Board of Directors identified herein, "FOR"
the ratification of 1998 employee incentive awards and "FOR" the ratification
of the appointment of Ernst & Young LLP as the Company's independent auditors,
all as described herein.
A Proxy for use at the Meeting is enclosed. The Proxy must be signed and
dated by you or your authorized representative or agent. Telegraphed, cabled
or telecopied Proxies are also valid. You may revoke a Proxy at any time
before it is exercised at the Meeting by submitting a written revocation to
the Secretary of the Company or a duly executed Proxy bearing a later date or
by voting in person at the Meeting.
If you hold Common Stock in "street name" and you fail to instruct your
broker or nominee as to how to vote such Common Stock, your broker or nominee
may, in its discretion, vote such Common Stock "FOR" the election of the Board
of Directors' nominees, "FOR" the ratification of 1998 employee incentive
awards and "FOR" the other proposals described herein.
Unless revoked, the shares of Common Stock represented by Proxies will be
voted in accordance with the instructions given thereon. In the absence of any
instruction in the Proxy, such shares of Common Stock will be voted "FOR" the
election of the nominees for director identified herein and "FOR" the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
The enclosed Proxy confers discretionary authority with respect to any other
proposals which properly may be brought before the Meeting. As of the date
hereof, 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 Proxyholders 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 arise which prevent such nominee from serving in such position
and to vote such Proxy for such substitute nominee.
2
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of the Record Date by each person known to the Company to be the beneficial
owner of more than five percent of the outstanding shares of Common Stock
(other than depositories), by each executive officer, director and nominee for
director of the Company, and by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER(1) OWNERSHIP(2) OWNED(3)
---------------------- ----------------- ----------
<S> <C> <C>
Gerard Guez.................................. 3,016,666(4)(5) 45.0%
Todd Kay..................................... 1,466,666(4)(5) 21.9
Limited Direct Associates, L.P............... 649,999(4) 9.7
Corazon R. Reyes............................. 57,778(6) *
Karen S. Wasserman........................... 27,778(6) *
Mark B. Kristof.............................. 10,000 *
Eddy Yuen Tak Yu............................. 38,700(6) *
Marshall Gobuty.............................. -- --
Barry S. Aved................................ 3,000(6) *
James R. Miller.............................. -- --
All directors and executive officers as a
group (nine persons)........................ 4,620,088(6) 68.9
</TABLE>
- --------
*Less than 1%.
(1) The address of the directors and executive officers of the Company is 3151
East Washington Boulevard, Los Angeles, California 90023. The address of
Limited Direct Associates, L.P. is c/o The Limited, Inc., Three Limited
Parkway, P.O. Box 16000, Columbus, Ohio 43230.
(2) Except as set forth below, the named shareholder has sole voting power and
investment power with respect to the shares listed, subject to community
property laws where applicable.
(3) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after the Record Date are deemed to be outstanding
in calculating the percentage ownership of the person (or group) but are
not deemed to be outstanding as to any other person or group.
(4) Gerard Guez and Todd Kay have granted Limited Direct Associates, L.P.
("LDA"), a limited partnership, the general and limited partners of which
are subsidiaries of The Limited, an option to purchase up to 649,999
shares (subject to certain anti-dilution provisions) of Common Stock at a
price of $7.20 per share. Messrs. Guez and Kay will continue to have the
right to vote the shares purchased by The Limited for one year following
the exercise of the option, and will also have a right of first refusal to
purchase such shares, subject to certain exceptions.
(5) Gerard Guez and Todd Kay have pledged an aggregate of 1,220,000 shares and
75,000 shares, respectively, to financial institutions to secure the
repayment of loans to such shareholders or corporations controlled by such
shareholders.
(6) Excludes 214,884 shares which certain directors and executive officers
will have the right to purchase upon the exercise of stock options granted
pursuant to the Employee Incentive Plan, which options will become
exercisable in various installments commencing on July 26, 1998.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
DIRECTORS AND EXECUTIVE OFFICERS
The Restated Bylaws of the Company provide that the number of directors of
the Company shall be fixed from time to time exclusively by the Board of
Directors, but shall not be less than six nor more than eleven. The Board of
Directors has fixed the number of directors at six. The Restated Articles of
Incorporation of the Company provides that, commencing with the Meeting, the
Board of Directors shall be divided into two classes which are elected for
staggered two year terms. The term of each class expires at the annual meeting
of shareholders in the year 1999 (Class I) and the year 2000 (Class II).
The persons named below, all of whom currently are members of the Board of
Directors of the Company, have been nominated for election to the Board of
Directors, three of whom shall serve until the next annual meeting of
shareholders (to be held in the year 1999) and until their successors have
been elected and qualified (Class I) and three of whom shall serve until the
annual meeting of shareholders to be held in the year 2000 and until their
successors have been elected and qualified. All nominees have indicated their
willingness to serve and, unless otherwise instructed, Proxies will be voted
in such a way as to elect as many of these nominees as possible under
applicable voting rules. In the event that a nominee should be unable to serve
as a director, it is intended that the Proxies will be voted for the election
of such substitute nominee, if any, as shall be designated by the Board of
Directors. Management has no reason to believe that any nominee will be
unavailable.
None of the directors, nominees for director or executive officers were
selected pursuant to any arrangement or understanding, other than with the
directors and executive officers of the Company acting within their capacity
as such. There are no family relationships among directors or executive
officers of the Company and, except as set forth above, as of the date hereof,
no directorships are held by any director in a company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. Officers serve at the
discretion of the Board of Directors.
The following table sets forth certain information concerning the directors
and executive officers of the Company as of the Record Date.
<TABLE>
<CAPTION>
CLASS OF
NAME AGE POSITION DIRECTOR
---- --- -------- --------
<C> <C> <S> <C>
Gerard Guez(1) 42 Chairman of the Board, Chief Executive
Officer and Director II
Todd Kay 41 President and Director II
Corazon R. Reyes 54 Executive Vice President and Secretary --
Karen S. Wasserman 44 Executive Vice President, General
Merchandising Manager and Director I
Mark B. Kristof 47 Vice President--Finance, Chief
Financial Officer and Director I
Eddy Yuen Tak Yu 43 Executive Vice President--Sourcing and
General Manager--Tarrant Company
Limited --
Marshall Gobuty 36 Vice President--Men's --
Barry S. Aved (1)(2) 54 Director II
James R. Miller (1)(2) 56 Director I
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
4
<PAGE>
GERARD GUEZ founded the Company in 1988 and has served as its Chairman of
the Board and Chief Executive Officer since its inception. Mr. Guez also
founded Tarrant Company Limited ("Tarrant HK"), the Company's Hong Kong
subsidiary, in 1985, and he has served as its Chairman and Chief Executive
Officer since that date. Prior to founding Tarrant HK, Mr. Guez served as the
President of Sasson Jeans, L.A., Inc., which was a manufacturer and
distributor of denim apparel under the "Sasson" license.
TODD KAY has served as President and a Director of the Company since 1988.
Mr. Kay has also served as a Director of Tarrant HK since 1986. Prior to
joining the Company, Mr. Kay was a sales manager for Sasson Jeans, L.A., Inc.
from 1979 to 1980 and served as President of JAG Beverly Hills, Inc., an
apparel manufacturer, from 1980 to 1985. JAG Beverly Hills, Inc. filed for
bankruptcy protection under the U.S. Bankruptcy Code in 1987.
CORAZON R. REYES has served as Secretary since the Company's inception and
as an Executive Vice President since July 1997. From the Company's inception
in 1988 until 1994, Ms. Reyes served as Controller and a Director of the
Company, and from 1994 until July 1997, she served as Chief Operating Officer
and as a Director. Ms. Reyes has also served as a Director of Tarrant HK since
1988. Ms. Reyes served in various accounting and operations positions at
Sasson Jeans, L.A., Inc. and other affiliated garment manufacturing companies
from 1980 to 1988. Ms. Reyes received a B.S. in Business Administration from
the University of the East in the Philippines and was a C.P.A. in that
country. She is a member of the American Management Association.
KAREN S. WASSERMAN joined the Company in 1988, and until 1994, she served as
a Vice President of the Company. In 1994, Ms. Wasserman was named Executive
Vice President, General Merchandising Manager and a Director of the Company.
In her current position, Ms. Wasserman directs and manages the Company's
design teams and merchandisers and she is responsible for the Company's
research of fashion themes and development of product samples. From 1983 to
1988, Ms. Wasserman was employed by Express, an apparel retailer that is a
division of The Limited, Inc., where she served from 1986 to 1988 as a Vice
President and Merchandise Manager. In these capacities, she managed the
merchandising of shirts, dresses and jackets from initial product development
through product delivery and sales. Ms. Wasserman holds a Bachelor of Fine
Arts degree from Syracuse University and has over 16 years of experience in
the apparel industry.
MARK B. KRISTOF has served as the Vice President--Finance, Chief Financial
Officer and a Director of the Company since 1994. From 1992 until joining the
Company, Mr. Kristof served as the Vice President--Finance and Administration
and Chief Financial Officer of Meridian Products, Inc., an importer of seafood
products. From 1989 to 1992, Mr. Kristof served as Treasurer of L.A. Gear,
Inc., a distributor of brand-name footwear and apparel, where he was also
named Vice President--Finance in 1991. Mr. Kristof holds a Masters in Business
Administration from Carnegie-Mellon University and has a Bachelor's degree in
Mechanical Engineering from General Motors Institute.
EDDY YUEN TAK YU has served as General Manager and a Director of Tarrant HK
since 1987. He was named Executive Vice President--Sourcing in 1996. Mr. Yuen
Tak Yu manages the Company's sourcing and manufacturing operations that are
based in Hong Kong. Prior to joining the Company in 1987, Mr. Yuen Tak Yu
served as the Sales Manager for Famous Horse Garment Factory, Ltd., a
manufacturer of woven garments, from 1985 to 1987. Mr. Yuen Tak Yu received a
Higher Diploma in Textile Technology from Hong Kong Polytechnic University and
has over 15 years of experience in the apparel industry.
MARSHALL GOBUTY has served as Vice President--Men's since February 23, 1998.
Prior to joining the Company, Mr. Gobuty was the Chief Executive Officer of
MGI USA, Inc., a company specializing in apparel related product development
and sourcing for major retail chains since 1994. Between 1983 and 1994,
Mr. Gobuty was President and Chief Executive Officer of Marshall Gobuty
International, Inc., a wholly owned subsidiary of ETAC, a public company
listed on the Toronto Stock Exchange, and was responsible for opening and
developing the U.S. market for this Canadian company.
5
<PAGE>
BARRY S. AVED has served as a director of the Company since December 3,
1996. From 1961 until 1986, Mr. Aved held various sales, purchasing and
merchandising positions in apparel and footwear retailers, including The
Limited, Inc. From 1986 until 1989, Mr. Aved was the President of Brooks
Fashion Stores and from 1989 until 1991, he was the President of Ormond
Stores, Inc. From 1991 until 1995, Mr. Aved was the President of Lerner New
York, a division of The Limited, Inc.
JAMES R. MILLER has served as a Director of the Company since July 29, 1997.
Mr. Miller is currently the President, Worldwide Theatrical Business
Operations at Warner Brothers and has held numerous positions at that company
for more than the last five years. Before joining Warner Brothers, Mr. Miller
was Associate General Counsel at Paramount Pictures and Columbia Pictures.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the completion of the Company's initial public offering in July 1995,
the Board of Directors formed an Audit Committee and a Compensation Committee,
each of which committees consists of two or more directors who serve at the
discretion of the Board of Directors.
The Audit Committee is chaired by Mr. Aved, and its members are Messrs.
Aved, Guez and Miller. The primary purposes of the Audit Committee are (i) to
review the scope of the audit and all non-audit services to be performed by
the Company's independent certified public accountants and the fees incurred
by the Company in connection therewith, (ii) to review the results of such
audit, including the independent accountants' opinion and letter of comment to
management and management's response thereto, (iii) to review with the
Company's independent accountants the Company's internal accounting
principles, policies and practices and financial reporting, (iv) to make
recommendations regarding the selection of the Company's independent
accountants and (v) to review the Company's quarterly and annual financial
statements prior to public issuance.
The Compensation Committee is chaired by Mr. Miller, and its members are
Messrs. Aved and Miller. The purposes of the Compensation Committee are (i) to
review and recommend to the Board of Directors the salaries, bonuses and
perquisites of the Company's executive officers, (ii) to determine the
individuals to whom, and the terms upon which, awards under the Company's
profit sharing plan and Employee Incentive Plan, as defined below, will be
granted, (iii) to make periodic reports to the Board of Directors as to the
status of such plans and (iv) to review and recommend to the Board of
Directors additional compensation plans.
The Board of Directors met four times during fiscal 1997, and the Audit
Committee and the Compensation Committee of the Board of Directors met five
and two times, respectively, during fiscal 1997. All of the nominees who were
directors of the Company during fiscal 1997 attended at least 75% of the total
number of meetings of the Board of Directors and the total number of meetings
held by all committees on which they served during fiscal 1997, except for Ms.
Wasserman who attended 50%.
PROCEDURES FOR SHAREHOLDER NOMINATIONS
The Board of Directors does not have a standing nominating committee. The
procedures for nominating directors, other than by the Board of Directors
itself, are set forth in the Bylaws. Nominations for the election of directors
may be made by the Board of Directors or any shareholder entitled to vote in
the election of directors. However, a shareholder may nominate a person for
election as a director at a meeting only if written notice of such
shareholder's intent to make such nomination has been given to the Secretary
of the Company not later than 90 days in advance of such meeting or, if later,
the seventh day following the first public announcement of the date of such
meeting. Each such notice shall set forth: (i) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the shareholder is a holder of record
of stock of the Company entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting and nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the
6
<PAGE>
shareholder; (iv) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the United States Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by
the Board of Directors; and (v) the consent of each nominee to serve as a
director of the Company if so elected. In addition, the shareholder making
such nomination shall promptly provide any other information reasonably
requested by the Company. No person shall be eligible for election as a
director of the Company unless nominated in accordance with such procedures.
The Chairman of any meeting of shareholders shall direct that any nomination
not made in accordance with these procedures be disregarded.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any person holding ten percent or more of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership to the Securities and Exchange Commission (the "SEC") and to furnish
the Company with copies of such reports. Specific due dates for these reports
have been established and the Company is required to report in this Proxy
Statement any failure to file on a timely basis by such persons. Based solely
upon a review of copies of reports filed with the SEC, each person subject to
the reporting requirements of Section 16(a) has filed timely all reports
required to be filed in fiscal 1996.
DIRECTOR COMPENSATION
The Company pays 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 $2,000 per year for such service. The Board of
Directors may modify such compensation in the future. In addition, each
director not employed by the Company, upon joining the Board of Directors,
will receive an option to purchase 10,000 shares of the Common Stock of the
Company and, thereafter, an option to purchase 2,000 shares of Common Stock on
the date of each annual meeting at which such person is reelected to serve as
a director. Such options will have an exercise price equal to the fair market
value of such shares on the date of grant, become exercisable in four equal
annual installments commencing on the first anniversary of the grant thereof,
and expire on the tenth anniversary of the date of grant.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid by the Company to its executive
officers (collectively, the "Named Executives") for the year ended December
31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------------ --------------------- ------------------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
NAME AND PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS($) SARS(#)(2) PAYOUTS($) COMPENSATION ($)(3)
- ----------------------- ---- ---------- --------- ---------------- ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerard Guez, 1997 700,000 200,000 -- -- -- -- 50,000
Chairman of the Board 1996 656,443 450,000 -- -- 50,000 -- 50,000
and Chief Executive 1995 575,000 300,000 -- -- -- -- --
Officer
Todd Kay, 1997 700,000 200,000 -- -- -- -- 50,000
President 1996 656,443 450,000 -- -- 50,000 -- 50,000
1995 575,000 300,000 -- -- -- -- --
Corazon R. Reyes, 1997 180,000 16,200 -- -- -- -- 9,500
Chief Operating Officer 1996 179,039 29,000 -- -- 25,000 -- 7,500
and Secretary 1995 164,832 25,000 -- -- 75,000 -- 5,827
Karen S. Wasserman, 1997 399,692 -- -- -- -- -- 7,500
Executive Vice 1996 339,808 60,000 -- -- -- -- 7,500
President, General 1995 330,000 25,000 -- -- 50,000 -- 6,921
Merchandising Manager
Mark B. Kristof, 1997 163,261 16,000 -- -- -- -- 9,500
Vice President--Finance 1996 152,726 29,600 -- -- -- -- 7,500
and Chief Financial 1995 131,539 25,000 -- -- 55,555 -- 3,375
Officer
Eddy Yuen Tak Yu, 1997 180,001 97,419 -- -- -- -- 8,308
Executive Vice 1996 148,388 129,032 -- -- 30,000 -- 6,849
President--Sourcing 1995 143,921 109,677 -- -- 75,000 -- 6,625
and General Manager--
Tarrant Company
Limited
</TABLE>
- -------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances. The
aggregate amount of such personal benefits does not exceed the lesser of
$50,000 or 10% of the total of the annual salary and bonus reported for
the Named Executives.
(2) Consists of shares issuable pursuant to options granted under the Employee
Incentive Plan.
(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.
EMPLOYMENT AGREEMENTS
Pursuant to an employment contract dated as of January 1, 1995, as amended
(the "Guez Agreement"), Gerard Guez has been employed as the Chairman of the
Board and Chief Executive Officer of the Company. The Guez Agreement provided
that Mr. Guez receive an annual salary of $750,000 and, at the discretion of
the Board of Directors, an annual bonus. The Guez Agreement expired by its
terms on December 31, 1997. Mr. Guez and the Company are discussing the terms
upon which the Guez Agreement may be renewed.
Pursuant to an employment contract dated as of January 1, 1995, as amended
(the "Kay Agreement"), Todd Kay has been employed as the President of the
Company. The Kay Agreement provided that Mr. Kay receive an annual salary of
$750,000 and, at the discretion of the Board of Directors, an annual bonus.
The Kay Agreement expired by its terms on December 31, 1997. Mr. Kay and the
Company are discussing the terms upon which the Kay Agreement may be renewed.
8
<PAGE>
Pursuant to an employment contract dated as of November 18, 1994, as amended
(the "Kristof Agreement"), Mark B. Kristof is employed as the Chief Financial
Officer of the Company. The Kristof Agreement provides that Mr. Kristof will
receive the following compensation: (i) an annual base salary of $160,000,
subject to increase at the Company's sole discretion; (ii) options to purchase
55,555 shares of Common Stock pursuant to the Employee Incentive Plan with an
exercise price of $9.00 per share (the "Kristof Options"); and (iii) such
other benefits as may be accorded to the Company's other executive employees.
Unless earlier terminated, the Kristof Agreement will continue in effect for
seven years. Under certain circumstances, including a change in control or
termination of the Kristof Agreement by the Company without cause prior to the
expiration thereof, Mr. Kristof will be entitled to receive from the Company
an amount equal to his annual base salary and continuation of his benefits for
a period of twelve months following the termination date and any unvested
stock options held by Mr. Kristof which were scheduled to vest in the twelve-
month period subsequent to the date of termination will vest immediately.
Pursuant to an employment contract dated as of February 23, 1998 (the
"Gobuty Agreement"), Marshall Gobuty is employed as the Vice President--Men's
of the Company. The Gobuty Agreement provides that Mr. Gobuty will receive an
annual base salary of $375,000 and such other benefits as may be accorded to
the Company's other executive officers. Unless earlier terminated, the Gobuty
Agreement will continue in effect until February 23, 1999. In the event the
Company terminates his employment without "cause" (as defined), Mr. Gobuty
shall be entitled to receive (i) a lump sum payment equal to his base salary
for the balance of the term and (ii) continuation of group medical and
disability insurance of the balance of the term. In the event the Company
terminates Mr. Gobuty's employment with "cause," the Company is obligated to
pay the compensation required by the agreement only through the date of
termination. In addition, Mr. Gobuty has agreed not to compete with the
Company during the two years following the termination of his employment for
any reason.
INCENTIVE COMPENSATION AWARDS
The Compensation Committee has established criteria under which Messrs. Guez
and Kay and Ms. Wasserman could receive 1998 bonuses under the Employee
Incentive Plan of $1,000,000, $1,000,000 and $100,000, respectively, in the
event the Company reports a specified amount of pre-tax income and each such
individual satisfies certain performance-based criteria. See "ELECTION OF
DIRECTORS--Employee Incentive Plan."
STOCK OPTION GRANTS
The following table sets forth certain information concerning the grant of
stock options during fiscal 1997 to the Named Executives pursuant to the
Employee Incentive Plan.
OPTION/SAR GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/ PRICE APPRECIATION
UNDERLYING SARS GRANTED FOR OPTION TERM(1)
OPTIONS/SARS TO EMPLOYEES EXERCISE OR EXPIRATION ---------------------
NAME GRANTED IN FY 1997 BASE PRICE DATE 5% 10%
- ---- ------------ ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
None
- --------
1) The Potential Realizable Value is the product of (a) the difference between
(i) the product of the closing sale price per share at the date of grant
and the sum of (A) 1 plus (B) the assumed rate of appreciation of the
Common Stock compounded annually over the term of the option and (ii) the
per share exercise price of the option and (b) the number of shares of
Common Stock underlying the option at December 31, 1997. These amounts
represent certain assumed rates of appreciation only. Actual gains, if any,
on stock option exercises are dependent on a variety of factors, including
market conditions and the price performance of the Common Stock. There can
be no assurance that the rate of appreciate presented in this table can be
achieved.
9
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to the Named
Executives concerning the exercise of options during fiscal 1997 and
unexercised options held by the Named Executives as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/31/97 12/31/97(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerard Guez............. -- -- 16,666 33,337 35,415 70,835
Todd Kay................ -- -- 16,666 33,337 35,415 70,835
Corazon R. Reyes........ -- -- 62,778 37,222 370,904 179,096
Karen S. Wasserman...... -- -- 27,778 22,222 184,029 147,221
Mark B. Kristof......... 13,888 118,048 19,445 22,222 128,823 147,221
Eddy Yuen Tak Yu........ 18,750 150,000 38,700 47,550 222,638 213,769
Marshall Gobuty......... -- -- -- -- -- --
</TABLE>
- --------
(1) The value of unexercised "in-the-money" options is the difference between
the closing sale price of the Common Stock on December 31, 1997 ($15.625
per share) and the exercise price of the option, multiplied by the number
of shares subject to the option.
EMPLOYEE INCENTIVE PLAN
GENERAL. In May 1995, the Company and its shareholders adopted the 1995
Stock Option Plan. In May 1997, the shareholders approved an amendment and
restatement of that plan and it was renamed as the Tarrant Apparel Group
Employee Incentive Plan (the "Employee Incentive Plan"). The Employee
Incentive Plan currently provides for the issuance of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), 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.
As of March 16, 1998, there were 686,622 shares of the Company's Common
Stock subject to outstanding options, 310,924 shares (subject to adjustment to
prevent dilution) available for awards and nine directors and executive
officers and approximately 450 employees and consultants eligible to
participate in the Employee Incentive Plan. For information concerning the
grant of stock options during fiscal 1997 to the Named Executives, the
exercise of stock options during fiscal 1997 by the Named Executives and
unexercised stock options held by the Named Executives as of December 31,
1997, see "ELECTION OF DIRECTORS--Stock Option Grants" and "ELECTION OF
DIRECTORS--Option Exercises and Holdings."
ADMINISTRATION. The Employee Incentive Plan is administered by the
Compensation Committee of the Board of Directors. The Committee has the power
to construe and interpret the Employee Incentive Plan and, subject to
provisions of the Employee Incentive Plan, to determine the persons to whom
and the dates on which awards will be granted, the number of shares to be
subject to each award, the times during the term of each award within which
all or a portion of such award may be exercised, the exercise price, the type
of consideration and other terms and conditions of such award. The Committee
shall be composed solely of individuals who are "outside directors" within the
meaning of Section 162(m)(4)(C) of the Code.
ELIGIBILITY. Incentive stock options may be granted under the Employee
Incentive Plan only to employees (including directors if they are also
employees) of the Company and its subsidiaries. Employees, directors and
independent contractors are eligible to receive nonstatutory (non-qualified)
stock options, stock appreciation rights, restricted awards, performance
awards and other awards under the Employee Incentive Plan.
10
<PAGE>
No incentive stock option may be granted under the Employee Incentive Plan
to any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any subsidiary of the Company, unless the option exercise price is at least
110% of the fair market value of the stock subject to the option on the date
of the grant and the term of the option does not exceed five years from the
date of the grant. In addition, the aggregate fair market value, determined at
the time of the grant, of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
subsidiaries) may not exceed $100,000. As a result of enactment of Section
162(m) of the Code, and to provide the Compensation Committee flexibility in
structuring awards, the Employee Incentive Plan states that in the case of
stock options and stock appreciation rights, no person may receive in any year
a stock option to purchase more than 100,000 shares or a stock appreciation
right measured by more than 100,000 shares.
If awards granted under the Employee Incentive Plan expire, are canceled or
otherwise terminate without being exercised, the Common Stock not purchased
pursuant to the award again becomes available for issuance under the Employee
Incentive Plan.
TERMS OF AWARDS. The following is a description of the types of grants and
awards and the permissible terms under the Employee Incentive Plan. Individual
awards may be more restrictive as to any or all of the permissible terms
described below.
Stock options may be granted as "incentive stock options" within the meaning
of Section 422 of the Code or nonstatutory (non-qualified) stock options.
Stock appreciation rights ("SARs") may be granted specifying a period of
time for which increases in share price shall be measured, with the grantee
eligible to receive stock or cash at the end of the period based upon
increases in the share price.
Restricted awards may be granted specifying a period of time (the
"Restriction Period") applicable to the award, which shall be not less than
three (3) years, but may be more than that and may vary at the discretion of
the Committee. Common Stock awarded pursuant to a restricted stock award shall
entitle the holder to enjoy all the shareholder rights during the restriction
period except that certain limitations with respect to dividend distributions
and disposition of the stock shall apply.
Performance awards may be granted specifying a number of performance shares
to be credited to an account on behalf of the recipient, each share of which
is deemed to be the equivalent of one share of Common Stock of the Company.
These awards shall be subject to both time and Company performance objectives
that are specified at the time of the award at the discretion of the
Committee. The value of a performance share in a holder's account at the time
of award or the time of payment shall be the fair market value at any time of
a share of the Common Stock of the Company.
Other awards may be granted under the Employee Incentive Plan that are not
in the categories discussed above because the Employee Incentive Plan provides
the Compensation Committee flexibility in designing compensation programs.
EXERCISE PRICE; PAYMENT. The exercise of stock options under the Employee
Incentive Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant and in some cases as
described above may not be less than 110% of fair market value. Similarly,
SARs are based upon the fair market value of a share of Common Stock on the
date of the grant compared with the fair market value of a share at the end of
the measuring period. The sole basis for compensation under these awards is an
increase in the stock's fair market value.
Restricted stock awards are payable in stock upon satisfaction of the
restrictions imposed with respect to the award. The Compensation Committee has
the discretion to pay other awards in cash, in shares of Common Stock, or a
combination of both.
11
<PAGE>
PERFORMANCE GOALS. The Employee Incentive Plan is structured so that the
Compensation Committee may make awards that qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, as that
section was enacted in 1993. However, the Employee Incentive Plan is flexible
so that the Compensation Committee also has the discretion to make awards that
are not described in that section. Section 162(m) provides a limit of
$1,000,000 on deductions for compensation paid to certain corporate executives
on a year-by-year basis. However, "performance-based compensation" is excluded
from that limitation. Whether any particular award under the Employee
Incentive Plan will qualify as "performance-based compensation" will depend
upon the terms of the award and compliance with certain other procedural
requirements under Section 162(m). The Compensation Committee will take into
account the overall tax and business objectives of the Company in structuring
awards under the Employee Incentive Plan.
TERM. The maximum term of the Employee Incentive Plan is ten years, except
that the Board of Directors may terminate the Employee Incentive Plan earlier.
The term of each individual award will depend upon the written agreement
between the Company and the grantee setting forth the terms of the awards. In
certain circumstances, an award may remain outstanding for a period that
extends beyond the term of the Employee Incentive Plan or the period of the
grantee's employment.
ADJUSTMENTS. If there is any change in the stock subject to the Employee
Incentive Plan or subject to any award made under the Employee Incentive Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in kind, stock split, liquidating dividend, combination or
exchange of shares, change in corporate structure or otherwise), the Employee
Incentive Plan and shares outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Employee Incentive Plan and the class, number of shares and price per share of
stock subject to such outstanding options as determined by the Compensation
Committee to be fair and equitable to the holders, the Company and the
shareholders. In addition, the Compensation Committee may also make
adjustments in the number of shares covered by, and the price or other value
of any outstanding awards under the Employee Incentive Plan in the event of a
spin-off or other distribution (other than normal cash dividends) of Company
assets to shareholders.
AMENDMENT. The Board of Directors may amend the Employee Incentive Plan at
any time and from time to time without shareholder approval, except that an
amendment may not, without shareholder approval: (i) increase the number of
shares authorized for issuance under the Employee Incentive Plan except as a
result of an adjustment; (ii) materially modify the requirements as to
eligibility for participation in the Employee Incentive Plan; or (iii)
materially increase the benefits accruing to participants under the Employee
Incentive Plan.
RESTRICTIONS ON TRANSFER. Under the Employee Incentive Plan, no award shall
be transferable by a holder other than by laws of descent and distribution.
Option rights shall be exercisable during the holder's lifetime only by the
holder or by his guardian or legal representative.
EMPLOYEE BENEFIT PLANS
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 contributions 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
year. The Provident Fund permits employees who have completed one year of
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.
12
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is or has been an officer
or employee of the Company or its subsidiaries.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Report of the Compensation Committee of the Board of Directors shall not
be deemed filed under the Securities Act of 1993 (the "Securities Act") or
under the Securities Exchange Act of 1934 (the "Exchange Act").
REPORT OF THE COMPENSATION COMMITTEE
Since its inception, the Company has maintained the philosophy that
executive compensation should be competitive with that provided by other
companies in the women's apparel industry to assist the Company in attracting
and retaining qualified executives critical to the Company's long-term
success.
Prior to the Company's initial public offering in July 1995 and the
establishment of this Committee, the Board of Directors approved employment
arrangements with certain executive officers in order to be assured of their
continued services and their experience, knowledge and abilities which have
been largely responsible for the Company's success to date. Certain of these
employment arrangements expired by their terms on December 31, 1997, and the
Company and the respective employees are discussing the terms upon which such
arrangements may be renewed. In determining the salaries and the perquisites
provided in such arrangements, the Board of Directors considered, among other
things, (i) the net sales and net income history of the Company, both before
and after the employment of these individuals, (ii) the estimated near and
intermediate term results of operations of the Company, (iii) the position of
the Company in its industry, (iv) the expertise of these individuals, (v) the
current sales, net income, growth and capital structure of the Company and
comparable companies and (vi) salaries and perquisites of executives of
comparable companies.
Payment of discretionary bonuses in fiscal 1997 was based upon the
satisfaction of individual performance objectives for each executive officer
and performance objectives for the Company as a whole, as well as a subjective
assessment of the individual's actual and potential contribution to the
Company. In the case of Messrs. Guez and Kay, the Committee was particularly
influenced by the achievement with regard to net sales and net income in a
difficult retail environment.
Executive officers are permitted to participate in the benefit plans
provided to employees generally, and certain executive officers are provided
long-term disability insurance, reimbursement of tax and accounting fees and
automobile allowances. The incremental cost to the Company of these benefits
provided to the Named Executives was not material in fiscal 1997.
In addition, the Company believes that stock ownership by executive officers
provides valuable incentives for such persons, who will benefit as the Common
Stock price increases, and that stock-based performance compensation
arrangements are beneficial in aligning employees' and shareholders' interests
by creating common incentives related to the possession by management of an
economic interest in the appreciation of the Company's Common Stock. In
support of these objectives, the Committee established criteria under which
Messrs. Guez and Kay and Ms. Wasserman could receive 1998 bonuses of
$1,000,000, $1,000,000 and $100,000, respectively, in the event the Company
reports a specified amount of pretax income and each such individual satisfies
certain such criteria.
Dated: February 20, 1998 THE COMPENSATION COMMITTEE
Barry S. Aved, Chairman
Donald Hecht
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on Common Stock with (i) the cumulative
total return of the NASDAQ market index and (ii) the cumulative total return of
companies with the standard industrial classification (SIC) code 5137 over the
period from July 25, 1995 through February 28, 1998. The component entities of
SIC Code 5137 were generated by Media General Financial Service, Inc. All the
entities in SIC Code 5137 were incorporated into the peer group. The graph
assumes an initial investment of $100 on July 25, 1995 and the reinvestment of
dividends through February 28, 1998. The graph is not necessarily indicative of
future price performance.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG TARRANT APPAREL GROUP, INDUSTRY INDEX AND BROAD MARKET
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
TARRANT
Measurement Period APPAREL INDUSTRY BROAD
(Fiscal Year Covered) GROUP INDEX MARKET
- --------------------- ------- -------- ------
<S> <C> <C> <C>
Measurement Pt- 7/25/95 $100.00 $100.00 $100.00
FYE 12/31/95 $ 80.86 $ 87.01 $102.74
FYE 12/31/96 $141.67 $ 96.36 $127.67
FYE 12/31/97 $173.62 $ 87.06 $156.17
FYE 02/28/98 $222.22 $ 95.86 $176.43
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, the Company advanced an aggregate of $2.0 million to Azteca
Production International, Inc., a corporation controlled by two brothers of Mr.
Guez, with interest. This advance was repaid within 30 days.
In 1997, the Company advanced to Messrs. Guez and Kay an aggregate of
$1,278,000 and $324,000, respectively. Such advances are payable upon demand
and bear interest at 7% per annum.
The Company leases its principal offices located in Los Angeles, California
and office space in Hong Kong from corporations owned by Messrs. Guez and Kay.
The Company believes the rents on these properties are comparable to prevailing
market rents.
The Company has adopted a policy that future transactions between the Company
and any of its affiliates or related parties, including its executive officers,
directors, the family members of those individuals and any of their affiliates,
must (i) be approved by a majority of the members of the Board of Directors and
by a majority of the disinterested members of the Board of Directors and (ii)
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
14
<PAGE>
LIMITATION ON LIABILITY AND INDEMNIFICATION
The Restated Articles of Incorporation of the Company limit the liability of
the Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its shareholders, except to the extent
otherwise required by the California General Corporation Law. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Restated Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by applicable law,
including circumstances in which indemnification is otherwise discretionary.
Such provisions may require the Company, among other things, (i) to indemnify
its officers and directors against certain liabilities that may arise by
reason of their status or service as directors or officers provided such
persons acted in good faith and in a manner reasonably believed to be in the
best interests of the Company and, with respect to any criminal action, had no
cause to believe their conduct was unlawful, (ii) to advance the expenses
actually and reasonably incurred by its officers and directors as a result of
any proceeding against them as to which they could be indemnified and (iii) to
obtain directors' and officers' insurance if available on reasonable terms.
There is no action or proceeding pending or, to the knowledge of the Company,
threatened which may result in a claim for indemnification by any director,
officer, employee or agent of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES.
PROPOSAL 2
RATIFICATION OF 1998 EMPLOYEE INCENTIVE AWARDS
Pursuant to the Employee Incentive Plan, the Compensation Committee
established criteria under which Messrs. Guez and Kay and Ms. Wasserman could
receive 1998 bonuses of $1,000,000, $1,000,000 and $100,000, respectively, in
the event the Company reports a specified amount of pretax income and each
such individual satisfies certain performance-based criteria. For a
description of the Employee Incentive Plan, see "ELECTION OF DIRECTORS--
Employee Incentive Plan."
The shareholders will be asked at the Meeting to consider and act upon a
proposal to ratify the grant of such 1998 bonuses. The proposal to ratify the
grant of 1998 bonuses requires the affirmative vote of a majority of the
shares of Common Stock represented and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF 1998
EMPLOYEE INCENTIVE AWARDS.
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent certified public accountants for the fiscal year ending December
31, 1998. Ernst & Young LLP was retained effective December 29, 1995 for the
examination of the consolidated financial statements of the Company for the
fiscal year ended December 31, 1995. All professional services rendered by
Ernst & Young LLP during fiscal 1997 were furnished at customary rates and
terms. Representatives of Ernst & Young LLP will be invited to be present at
the Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
shareholders.
15
<PAGE>
Shareholders are being asked to ratify the appointment of Ernst & Young LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1998. Ratification of the proposal requires the affirmative vote
of a majority of the shares of Common Stock represented and voting at the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. Any such proposal to be included in the proxy
statement for the Company's 1999 annual meeting of shareholders must be
submitted by a shareholder prior to November 19, 1998, in a form that complies
with applicable regulations.
ANNUAL REPORT
The Company's Annual Report of the fiscal year ended December 31, 1997
accompanies or has preceded this Proxy Statement. The Annual Report contains
consolidated financial statements of the Company and its subsidiaries and the
report thereon of Ernst & Young LLP, the Company's independent auditors.
SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE EXCHANGE ACT FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, BY WRITING TO THE COMPANY AT 3151 EAST
WASHINGTON BOULEVARD, LOS ANGELES, CALIFORNIA 90023, ATTENTION: MARK B.
KRISTOF.
OTHER BUSINESS
Management knows of no business which will be presented for consideration at
the Meeting other than as stated in the Notice of Meeting. If, however, other
matters are properly brought before the Meeting, it is the intention of the
Proxyholders to vote the shares represented by the Proxies on such matters in
accordance with the recommendation of the Board of Directors and authority to
do so is included in the Proxy.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
/s/ Gerard Guez
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated: March 20, 1998
Los Angeles, California
16
<PAGE>
REVOCABLE PROXY REVOCABLE PROXY
TARRANT APPAREL GROUP
ANNUAL MEETING OF SHAREHOLDERS . MAY 1, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of Tarrant Apparel Group (the "Company")
hereby nominates, constitutes and appoints Gerard Guez and Mark B. Kristof,
and each of them, the attorney, agent and proxy of the undersigned, with full
power of substitution, to vote all stock of the Company which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Company (the
"Meeting") to be held at 11355 West Olympic Boulevard, Los Angeles, California
90064, on Friday, May 1, 1998 at 10:00 a.m., and any adjournment thereof, as
fully and with the same force and effect as the undersigned might or could do
if personally thereat, as follows:
1. ELECTION OF DIRECTORS.
For all nominees listed below
(except as marked to the contrary below) [_]
Barry S. Aved Todd Kay
Gerard Guez James R. Miller
WITHHOLD AUTHORITY
to vote for all nominees listed below [_]
Mark B. Kristof
Karen S. Wasserman
(INSTRUCTIONS: To withhold authority to vote for any one or more nominees
whose name appears above, write that nominee's or nominees' name(s) in the
space provided below)
- -------------------------------------------------------------------------------
2. RATIFICATION OF 1998 EMPLOYEE INCENTIVE AWARDS. To ratify the grant of 1998
awards to certain executive officers pursuant to the Employee Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the appoint-
ment of Ernst & Young LLP as the Company's independent auditors for the year
ending December 31, 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
4. OTHER BUSINESS. In their discretion, the proxyholders are authorized to
transact such other business as properly may come before the Meeting and any
adjournment or adjournments thereof.
FOR [_] AGAINST [_] ABSTAIN [_]
(PLEASE SIGN AND DATE ON REVERSE SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE, "FOR" THE RATIFICATION OF 1998 EMPLOYEE INCENTIVE
AWARDS AND "FOR" THE RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS
PROXY SHALL BE VOTED BY THE PROXYHOLDERS IN ACCORDANCE WITH THE
RECOMMENDATIONS OF A MAJORITY OF THE BOARD OF DIRECTORS.
The undersigned hereby ratifies and confirms all that said attorneys and
proxyholders, or either of them, or their substitutes, shall lawfully do or
cause to be done by virtue hereof, and hereby revokes any and all proxies
heretofore given by the undersigned to vote at the Meeting. The undersigned
hereby acknowledges receipt of the Notice of Annual Meeting and the Proxy
Statement accompanying said notice.
Date: _________ ______________________________________________
(NUMBER OF SHARES)
______________________________________________
(NAME OF SHAREHOLDER, PRINTED)
______________________________________________
(SIGNATURE OF SHAREHOLDER)
______________________________________________
(NAME OF SHAREHOLDER, PRINTED)
______________________________________________
(SIGNATURE OF SHAREHOLDER)
(PLEASE DATE THIS PROXY AND SIGN YOUR NAME AS
IT APPEARS ON YOUR STOCK CERTIFICATE(S).
EXECUTORS, ADMINISTRATORS, TRUSTEES, ETC.
SHOULD GIVE THEIR FULL TITLES. ALL JOINT
OWNERS SHOULD SIGN.)
I (WE) DO [_] DO NOT [_] EXPECT TO ATTEND
THE MEETING.
This Proxy will be voted "FOR" the election of all nominees whose names appear
above unless authority to do so is withheld. Unless "AGAINST" or "ABSTAIN" is
indicated on the reverse hereof, this Proxy will be voted "FOR" the
ratification of 1998 employee incentive awards and "FOR" the ratification of
the appointment of Ernst & Young LLP as the Company's independent auditors.
PLEASE SIGN, DATE AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.
