<PAGE>
As filed with the SEC on November 15, 1999
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the quarterly period ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the transition period from _________ to _________
Commission File Number: 0-26430
TARRANT APPAREL GROUP
(Exact name of registrant as specified in its charter)
California 95-4181026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3151 East Washington Boulevard
Los Angeles, California 90023
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (323) 780-8250
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock of the registrant outstanding as of November
15, 1999: 15,802,315.
<PAGE>
TARRANT APPAREL GROUP
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1999 and December 31, 1998 (Audited)........................................ 3
Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 1999 and September 30, 1998..................... 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and September 30, 1998............................... 5
Notes to Consolidated Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................................................. 18
Item 2. Changes in Securities.......................................................................... 18
Item 3. Defaults Upon Senior Securities................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders............................................ 18
Item 5. Other Information ............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K............................................................... 19
SIGNATURES ............................................................................. 20
INDEX TO EXHIBITS ........................................................................ 21
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
TARRANT APPAREL GROUP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- ---------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 4,224,029 $ 4,318,520
Accounts receivable, net (Note 3)................................ 78,390,875 65,946,055
Due from affiliates.............................................. 1,244,512 2,143,527
Due from officers................................................ 43,622 4,477,461
Inventory (Note 4)............................................... 63,298,716 49,230,847
Temporary quota.................................................. 1,937,258 1,192,888
Prepaid expenses................................................. 4,596,586 1,527,392
Deferred tax asset............................................... 268,952 23,284
Prepaid income taxes ............................................ 102,449 478,050
-------------------- --------------------
Total current assets...................................... 154,106,999 129,338,024
Property and equipment, net........................................ 93,747,740 5,306,308
Permanent quota, net............................................... 671,606 245,464
Other assets....................................................... 12,823,454 4,468,517
Excess of cost over fair value of net assets acquired, net........ 25,365,569 14,532,193
-------------------- --------------------
Total assets.............................................. $ 286,715,368 $ 153,890,506
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 6)......................................... $ 61,504,572 $ 33,288,267
Accounts payable................................................. 32,883,129 24,200,202
Accrued expenses................................................. 8,891,735 8,738,522
Income taxes..................................................... 11,455,464 5,048,288
Current portion of long-term obligations......................... 7,499,806 981,124
-------------------- --------------------
Total current liabilities................................. 122,234,706 72,256,403
Long-term obligations.............................................. 20,712,090 2,424,439
-------------------- --------------------
Total liabilities......................................... 142,946,796 74,680,842
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized; none issued
and outstanding............................................. -- --
Common stock, no par value, 20,000,000 shares
authorized; 15,800,315 shares (1999) and 13,832,955
shares (1998), issued and outstanding..................... 71,728,298 22,290,539
Contributed capital............................................ 1,434,259 1,434,259
Retained earnings.............................................. 70,606,015 55,484,866
-------------------- --------------------
Total shareholders' equity................................ 143,768,572 79,209,664
-------------------- --------------------
Total liabilities and shareholders' equity................ $ 286,715,368 $ 153,890,506
==================== ====================
</TABLE>
See accompanying notes.
3
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $110,542,148 $114,948,224 $304,367,407 $279,305,521
Cost of sales.................................. 91,273,243 95,258,023 250,102,157 228,403,202
------------ ------------ ------------ ------------
Gross profit................................... 19,268,905 19,690,201 54,265,250 50,902,319
Selling and distribution expenses.............. 3,788,705 3,055,548 9,639,714 7,569,704
General and administrative expenses............ 5,839,593 4,790,376 16,293,520 14,856,745
Amortization of excess of cost over fair
value of net assets acquired................. 609,796 470,057 1,643,731 870,057
------------ ------------ ------------ ------------
Income from operations......................... 9,030,811 11,374,220 26,688,285 27,605,813
Interest expense............................... (1,363,464) (806,288) (3,394,707) (1,677,854)
Interest income................................ (16,008) 88,038 262,990 236,757
Other income................................... 78,304 438,231 319,581 522,597
------------ ------------ ------------ ------------
Income before provision for income taxes....... 7,729,643 11,094,201 23,876,149 26,687,313
Provision for income taxes..................... (2,860,000) (4,000,000) (8,755,000) (9,590,000)
------------ ------------ ------------ ------------
Net income..................................... $ 4,869,643 $ 7,094,201 $ 15,121,149 $ 17,097,313
============ ============ ============ ============
Net income per share
Basic...................................... $ 0.31 $ 0.52 $ 1.01 $ 1.27
============ ============ ============ ============
Diluted.................................... $ 0.30 $ 0.49 $ 0.92 $ 1.21
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding
Basic...................................... 15,783,278 13,591,741 14,999,368 13,435,151
============ ============ ============ ============
Diluted.................................... 16,437,796 14,453,810 16,364,261 14,154,577
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
1999 1998
---------------- ------------------
(Unaudited)
<S> <C> <C>
Operating activities
Net income..................................................... $ 15,121,149 $ 17,097,313
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Deferred tax provision..................................... (245,668) 589,616
Depreciation and amortization.............................. 6,607,744 1,487,367
Provision for returns and discounts........................ 119,790 1,269,277
Changes in operating assets and liabilities:
Accounts receivable (10,683,259) (26,994,040)
Due from affiliates and officers....................... 5,332,853 (1,787,312)
Inventory.............................................. (14,062,242) (7,715,618)
Temporary Quota........................................ (744,370) (1,985,987)
Prepaid expenses....................................... (3,056,133) (924,048)
Prepaid income taxes................................... 375,601 375,541
Accounts payable....................................... 7,757,670 4,020,985
Accrued expenses....................................... (858,513) 9,643,947
Income taxes payable................................... 6,038,124 1,516,223
Foreign currency transaction (gain)/loss............... 437,402 __
---------------- ----------------
Net cash provided by (used in) operating activities.... 12,140,148 (3,406,736)
---------------- ----------------
Investing activities
Purchase of fixed assets....................................... (44,550,492) (335,009)
Acquisition of MGI............................................. __ (6,058,685)
Acquisition of Rocky, net of cash.............................. __ (7,969,453)
Acquisition of CMG............................................. (4,331,232) __
Acquisition of Famian.......................................... (6,757,133) __
Purchase of permanent quota (691,124) (151,581)
Increase in other assets ...................................... (8,355,338) (4,479,127)
---------------- ----------------
Net cash used in investing activities.................. (64,685,319) (18,993,855)
---------------- ----------------
Financing activities
Bank borrowings, net........................................... 26,212,642 __
Issuance of short-term debt.................................... 6,518,682 17,364,577
Issuance of long-term debt .................................... 16,002,714 (1,126,180)
Exercise of stock options including related tax benefit........ 3,716,642 2,723,219
---------------- ----------------
Net cash provided by financing activities.............. 52,450,680 18,961,616
---------------- ----------------
Decrease in cash and cash equivalents.......................... (94,491) (3,438,975)
Cash and cash equivalents at beginning of period............... 4,318,520 5,305,129
---------------- ----------------
Cash and cash equivalents at end of period ................... $ 4,224,029 $ 1,866,154
================ ================
</TABLE>
See accompanying notes.
5
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Consolidation
The accompanying financial statements include the accounts of the Company
and its consolidated subsidiaries. All significant intercompany investments,
transactions and balances have been eliminated.
2. Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of operations for the periods presented have been included.
The consolidated financial data at December 31, 1998 is derived from
audited financial statements which are included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, and should be read in
conjunction with the audited financial statements and notes thereto. Interim
results are not necessarily indicative of results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Assets and liabilities of the Hong Kong subsidiaries are translated at the
rate of exchange in effect on the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during the year. The
principal foreign currency in which the Company transacts business is the Hong
Kong dollar. Foreign currency gains and losses resulting from translation of
assets and liabilities are included in the statements of income. Historically,
such gains and losses have been immaterial. A majority of all significant
transactions in Mexico are transacted in U.S. dollars.
3. Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
U.S. trade accounts receivable................... $ 58,543,727 $ 53,693,368
Foreign trade accounts receivable................ 12,063,041 8,406,558
Due (to) from factor............................. 2,839,570 4,725,869
Other receivables................................ 7,311,334 1,367,266
Allowance for returns and discounts.............. (2,366,797) (2,247,006)
--------------- ---------------
$ 78,390,875 $ 65,946,055
=============== ===============
</TABLE>
Due (to) from factor consists of $3.5 million and $5.7 million of unmatured
accounts receivable assigned to the factor, less $0.7 million and $1.0 million
of advances received from the factor, at September 30, 1999 and December 31,
1998, respectively. Effective January 1, 1998, the Company substantially
eliminated its use of the factor for credit verification and approval purposes
on major accounts.
6
<PAGE>
TARRANT APPAREL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
4. Inventory
Inventory consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Raw materials
Fabric and trim accessories .......................... $ 17,228,401 $ 10,424,416
Raw cotton............................................ 1,564,814 1,043,449
Work-in-process............................................ 16,300,839 7,620,403
Finished goods shipments-in-transit........................ 1,848,534 10,331,867
Finished goods............................................. 26,356,128 19,810,712
--------------- ---------------
$ 63,298,716 $ 49,230,847
=============== ===============
</TABLE>
5. Property and Equipment
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Land.................................................. $ 1,340,106 $ 85,000
Buildings ............................................ 10,869,743 559,240
Equipment, furniture and fixtures..................... 77,859,201 3,123,630
Leasehold improvements................................ 2,532,894 1,322,765
Vehicles.............................................. 1,145,796 215,673
--------------- ---------------
$ 93,747,740 $ 5,306,308
=============== ===============
</TABLE>
6. Bank Borrowings
Bank borrowings consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Mexican credit facilities............................. $ 1,377,778 $ __
Import trade bills payable............................ 3,511,673 4,466,119
Direct bank acceptances............................... 7,119,312 16,969,565
Other Hong Kong credit facilities..................... 1,277,746 47,603
United States credit facilities....................... 48,218,063 11,804,980
--------------- ---------------
$ 61,504,572 $ 33,288,267
=============== ===============
</TABLE>
7. Acquisitions
Effective August 1, 1999, the Company purchased all of the outstanding
stock of Industrial Exportadora Famian, S.A. de C.V. and Coordinados Elite, S.A.
de C.V., both Mexican corporations ("Grupo Famian"). Grupo Famian operates seven
apparel production facilities in and near Tehuacan, Mexico which have the
capacity to provide "full package production" (i.e., cut, sew, launder, finish
and pack) of 110,000 units per week. The purchase price consisted of (i)
$1,000,000 paid on closing, (ii) a $3,000,000 noninterest-bearing promissory
note payable in three installments of $1,000,000 on each of August 31, September
30 and October 29, 1999 and (iii) $8,000,000 payable in installments of
$833,000, $3,000,000, $1,667,000, $1,667,000 and $883,000 on each of March 31,
2000, August 31, 2000, March 31, 2001, March 31, 2002 and September 30, 2002
provided, except with respect to the payment due August 31, 2000, that the Grupo
Famian subsidiary meets specified pretax income requirements. The purchase price
paid on closing was financed by the Company under its existing bank credit
facilities. The former shareholders of Grupo Famian were granted
7
<PAGE>
a security interest in the shares of Grupo Famian which was released following
the October 29, 1999 payment, subsequent to this period. This transaction has
been accounted for as a purchase, and the purchase price was allocated based on
the fair value of assets acquired and liabilities assumed. The excess of cost
over fair value of net assets acquired will be amortized over 15 years. The
operations of Grupo Famian are included with those of the Company commencing on
August 1, 1999.
On April 18, 1999, the Company finalized an agreement to acquire certain
assets of a denim mill located in Puebla, Mexico with an annual capacity of 18
million meters ("Jamil"). The purchase price consisted of $22.0 million in cash
paid on May 7, 1999 and 1,724,000 shares (the "Shares") of the Company's Common
Stock issued on May 24, 1999 valued at $45.3 million. (The common stock
component of the purchase price was thereby reduced by 276,000 shares from the
2,000,000 shares previously disclosed.) The Shares will be distributed to the
sellers in three equal installments on April 1, 2000, 2001 and 2002; provided,
however, that any distribution (i) shall be offset by any claims of the Company
against the sellers under the asset purchase agreement and (ii) will be
proportionally reduced in the event the assets fail to produce at least 15
million yards of marketable denim in the fiscal year immediately preceding the
dates of such distributions of Shares. In addition, the Company has granted the
holders of the Shares certain registration rights and the right to vote the
Shares.
The Company has entered into a three-year employment agreement with Mr.
Nacif, the principal shareholder of the sellers, pursuant to which Mr. Nacif
shall be entitled to receive (i) an annual base salary of $1 million, subject to
such periodic increases, if any, as the Company may deem to be appropriate, (ii)
reimbursement of all reasonable and documented business expenses, (iii)
participation in all plans sponsored by the Company for employees in general and
(iv) the right (the "Option") for ten years to purchase up to 500,000 shares of
the Company's Common Stock at an exercise price of $25 per share. The Option
will vest in three equal installments on April 1, 2000, 2001 and 2002 and will
terminate upon the termination of Mr. Nacif's employment by the Company;
provided, however, that (i) the vesting of any installment shall be deferred to
the date ten business days before the stated expiration date in the event the
operating income of the Company's Mexican operations does not reach certain
levels, and (ii) if such termination of employment results from Mr. Nacif's
death or permanent disability, any vested portion shall terminate on the earlier
of the stated expiration date or the first anniversary of such termination of
employment. In the event the Company terminates Mr. Nacif's employment without
cause (as defined) the Company shall remain obligated to pay Mr. Nacif an amount
equal to his base salary for the remainder of the stated term. In the event Mr.
Nacif's employment is terminated for any other reason (including death,
disability, resignation or termination with cause), neither party shall have any
further obligation to the other, except that the Company shall pay to Mr. Nacif,
or his estate, all reimbursable expenses and such compensation as is due
prorated through the date of termination.
On March 23, 1999, the Company purchased certain assets of CMG, Inc., a
California corporation ("CMG"). CMG designs, produces and sells private label
and "CHAZZZ"(R) branded woven (denim and twill) and knit apparel for women,
children and men for national chain stores, including J.C. Penney, Sears and
Mervyns. The purchase price consisted of (i) $4,275,000 and an amount equal to
seller's cost of the inventory purchased, payable in cash on closing, (ii) a
$2,500,000 noninterest-bearing promissory note payable in three equal annual
installments on the first three anniversary dates of the closing convertible
into 62,550 shares of common stock of the Company, (iii) $500,000 payable in two
equal installments of $250,000 on the second and third anniversary dates of
closing, and (iv) $1,500,000 payable in three equal installments of $500,000 on
the first three anniversary dates of closing provided the CMG Division meets
specified net sales and pretax income requirements. The purchase price paid on
closing was financed by the Company from its cash flow from operations. The
Company was granted a security interest in the 62,550 shares to secure the
performance of obligations under the purchase agreement, including, without
limitation, the indemnification obligations. This transaction has been accounted
for as a purchase, and the purchase price has been allocated based on the fair
value of assets acquired and liabilities assumed. The excess of cost over fair
value of net assets acquired is being amortized over 15 years. The operations of
CMG have been included with those of the Company commencing on March 23, 1999.
8
<PAGE>
The Company has entered into an employment agreement with Charles Ghailian,
the sole shareholder of CMG, under which he is employed as President - Chazzz
Division of the Company for a term commencing on March 23, 1999 and ending on
March 31, 2002, and will be paid an annual base salary of $480,000. In the event
the Company terminates his employment without cause, Mr. Ghailian shall be
entitled to receive a lump sum payment of $480,000. In addition, Mr. Ghailian
has agreed not to compete with the Company during the two years following the
termination of his employment for any reason.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
General
The Company primarily serves both specialty retail and mass merchandise
store chains by designing, merchandising, contracting for the manufacture of and
selling casual, moderately-priced apparel for women, men and children, under
private label. The Company's major customers include specialty retailers, such
as Express, Lane Bryant, Limited Stores, Lerner New York and Structure, all of
which are divisions of The Limited, as well as Target Stores and Mervyns
(divisions of Dayton Hudson), Abercrombie & Fitch, Walmart, Sears and J.C.
Penney. The Company's products are manufactured in a variety of woven and knit
fabrications and include jeanswear, casual pants, t-shirts, shorts, blouses,
shirts and other tops, dresses, leggings and jackets.
The Company identified changing needs of its customers and developed a
strategy to reposition its sourcing in order to better serve a broad customer
base. The Company has geographically diversified its sourcing operations.
Commencing in the third quarter of 1997, the Company substantially expanded its
use of independent cutting, sewing and finishing contractors in Mexico,
primarily for its increasing sales of basic garments, through its office in
Tehuacan, Mexico ("Tag Mex"). The Company believes that continuing to expand its
presence in Mexico will increase access to emerging providers of efficient
production, bring a sourcing arm closer to its customers and lessen certain
risks associated with doing business abroad (including transportation delays,
economic or political instability, currency fluctuations, restrictions on the
transfer of funds and the imposition of tariffs, export duties, quotas and other
trade restrictions).
The Company commenced the vertical integration of its business through the
acquisition of a fabric producing mill and the development of garment production
capacity in Mexico.
The agreement to acquire a denim mill in Puebla, Mexico was finalized on
April 18, 1999. The purchase price for such mill consisted of $22 million in
cash paid on May 7, 1999 and 1,724,000 shares of the Common Stock of the Company
issued on May 24, 1999. This facility has an annual capacity of approximately 18
million meters of denim.
On December 2, 1998, the Company contracted to acquire a turn-key complex
being constructed in Puebla, Mexico by an affiliate of the seller of the denim
mill described above. This complex is ultimately expected to have an annual
capacity of approximately 18 million meters of twill, sewing capacity of 200,000
units per week and ancillary facilities. Construction of this facility commenced
in the third quarter of 1998, and it is anticipated that the Company will take
possession of this facility during Spring of Year 2000. The Company currently
anticipates that the cost of this facility will be approximately $90 million.
Effective August 1, 1999, the Company purchased all of the outstanding
stock of Grupo Famian, which is composed of two Mexican corporations which
operate seven apparel production facilities in and near Tehuacan, Mexico which
have the capacity to provide full package production of 110,000 units per week.
For a description of the Grupo Famian acquisition, see Note 7 to Notes to
Consolidated Financial Statements.
The Company believes that through vertical integration, it has enhanced
capabilities to control the quality and availability of product on time, and on
specification. This positions the Company to provide supply chain management in
support of future growth with new and existing customers.
The Company has added future growth potential through strategic
acquisitions which have added important new channels of product distribution
such as men's and children's apparel, access to department stores, and vehicles
for penetration of consolidated vendor structures at the largest national
retailers.
10
<PAGE>
On February 23, 1998, the Company acquired certain assets of Marshall
Gobuty International U.S.A., Inc. and MGI International Limited which design,
contract for the manufacture of and sell private label apparel for men and boys
to national retailers, including J.C. Penney (the "MGI Acquisition").
On July 2, 1998, the Company acquired Rocky Apparel, L.P. which designs,
contracts for the manufacture of and sells private label apparel for men and
women to national retailer, including Abercrombie & Fitch and three divisions of
The Limited (the "Rocky Acquisition"). Rocky also produces for widely recognized
brands, providing access to department store distribution. On October 2, 1999,
Rocky announced that it would be closing its garment production in Mississippi,
and shifting this production to existing facilities in Mexico.
On March 23, 1999, the Company acquired certain assets of CMG, Inc. which
designs, produces and sells private label and "CHAZZZ"(R) branded woven (denim
and twill) and knit apparel for women, children and men for national chain
stores, including J.C. Penney, Sears and Mervyns (the "Chazzz Acquisition").
Factors That May Affect Future Results
This Report on Form 10-Q contains forward-looking statements which are
subject to a variety of risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth below.
Vertical Integration. In 1997, the Company commenced the vertical
integration of its business. Key elements of this strategy include (i)
establishing cutting, sewing, washing, finishing, packing, shipping and
distribution activities in company-owned facilities or through the acquisition
of established contractors and (ii) establishing fabric production capability
through the acquisition of established mills or the construction of new mills.
The Company has no history of operating textile mills or cutting, sewing,
washing, finishing, packing or shipping operations upon which an evaluation of
the prospects of the Company's vertical integration strategy can be based. In
addition, such operations are subject to the customary risks associated with
owning a manufacturing business, including, but not limited to, the maintenance
and management of manufacturing facilities, equipment, employees and
inventories.
Acquisition Strategy. A principal component of the Company's growth
strategy is to acquire smaller apparel manufacturers with customers or product
lines that complement the Company's existing business. The Company's ability to
maintain or exceed its historical growth rate may depend in part on its ability
to execute successfully its acquisition strategy. The successful execution of
this strategy will depend on the Company's ability to identify and to compete
for appropriate acquisition candidates, to consummate such acquisitions on terms
favorable to the Company (including obtaining acquisition financing, if
necessary), to retain and expand the sales and profitability of the acquired
businesses and to integrate the acquired businesses into its product
development, manufacturing, marketing, financial control and data processing
systems. See "--Management of Growth." The success of the Company's acquisition
strategy also is subject to the Company's ability to anticipate the changes that
continued growth would impose on these systems and management. There can be no
assurance that the Company will be successful in executing its strategy.
Although the Company regularly evaluates potential acquisition candidates, and
believes that numerous acquisition opportunities exist due, in part, to the
adverse effect on the earnings of many apparel manufacturers of the continuing
consolidation in its industry, there are no existing commitments or agreements
with respect to any acquisition, other than as described above.
Variability of Quarterly Results. The Company has experienced, and expects
to continue to experience, a substantial variation in its net sales and
operating results from quarter to quarter. The Company believes that the factors
which influence this variability of quarterly results include the timing of the
Company's introduction of new product lines, the level of consumer acceptance of
each new product line, general economic and industry conditions that affect
consumer spending and retailer purchasing, the
11
<PAGE>
availability of manufacturing capacity, the seasonality of the markets in which
the Company participates, the timing of trade shows, the product mix of customer
orders, the timing of the placement or cancellation of customer orders, the
occurrence of chargebacks in excess of reserves and the timing of expenditures
in anticipation of increased sales and actions of competitors. Accordingly, a
comparison of the Company's results of operations from period to period is not
necessarily meaningful, and the Company's results of operations for any period
are not necessarily indicative of future performance.
Economic Conditions. The apparel industry historically has been subject to
substantial cyclical variation, and a recession in the general economy or
uncertainties regarding future economic prospects that affect consumer spending
habits have in the past had, and may in the future have, a materially adverse
effect on the Company's results of operations. In addition, certain retailers,
including some of the Company customers, have experienced in the past, and may
experience in the future, financial difficulties which increase the risk of
extending credit to such retailers. These retailers have attempted to improve
their own operating efficiencies by concentrating their purchasing power among a
narrowing group of vendors. There can be no assurance that the Company will
remain a preferred vendor for its existing customers. A decrease in business
from or loss of a major customer could have a material adverse effect on the
Company's results of operations. There can be no assurance that the Company's
factor will approve the extension of credit to certain retail customers in the
future. If a customer's credit is not approved by the factor, the Company could
either assume the collection risk on sales to the customer itself, require that
the customer provide a letter of credit or choose not to make sales to the
customer.
Reliance on Key Customers. Affiliated stores owned by The Limited
(including Lerner New York, Limited Stores, Structure, Express and Lane Bryant)
accounted for approximately two thirds and four-tenths of the Company's net
sales in 1998 and the nine months of 1999, respectively. The loss of such
customer could have a material adverse effect on the Company's results of
operations. From time to time, certain of the Company's major customers have
experienced financial difficulties. The Company does not have long-term
contracts with any of its customers and, accordingly, there can be no assurance
that any customer will continue to place orders with the Company to the same
extent it has in the past, or at all. In addition, the Company's results of
operations will depend to a significant extent upon the commercial success of
its major customers.
Dependence on Contract Manufacturers. With the exception of Grupo Famian,
and the Company's denim mill, the Company's products are manufactured by
independent cutting, sewing and finishing contractors. The use of contract
manufacturers and the resulting lack of direct control over the production of
its products could result in the Company's failure to receive timely delivery of
products of acceptable quality. Although the Company believes that alternative
sources of cutting, sewing and finishing services are readily available, the
loss of one or more contract manufacturers could have a material adverse effect
on the Company's results of operations until an alternative source is located
and has commenced producing the Company's products.
Although the Company monitors the compliance of its independent contractors
with applicable labor laws, the Company does not control its contractors or
their labor practices. The violation of federal, state or foreign labor laws by
one of the Company's contractors can result in the Company being subject to
fines and the Company's goods which are manufactured in violation of such laws
being seized or their sale in interstate commerce being prohibited. From time to
time, the Company has been notified by federal, state or foreign authorities
that certain of its contractors are subject of investigations or have been found
to have violated applicable labor laws. To date, the Company has not been
subject to any sanctions that, individually or in the aggregate, could have a
material adverse effect upon the Company, and the Company is not aware of any
facts on which any such sanctions could be based. There can be no assurance,
however, that in the future the Company will not be subject to sanctions as a
result of violations of applicable labor laws by its contractors, or that such
sanctions will not have a material adverse effect on the Company. In addition,
certain of the Company's customers, including The Limited, require strict
compliance by their apparel manufacturers, including the Company, with
applicable labor laws. There can be no assurance that the violation of
applicable
12
<PAGE>
labor laws by one of the Company's contractors will not have a material adverse
effect on the Company's relationship with its customers.
Price and Availability of Raw Materials. Cotton fabric is the principal raw
material used in the Company's apparel. Although the Company believes that its
suppliers will continue to be able to procure a sufficient supply of cotton
fabric for its production needs, the price and availability of cotton may
fluctuate significantly depending on supply, world demand and currency
fluctuations, each of which may affect the price and availability of cotton
fabric. There can be no assurance that fluctuations in the price and
availability of cotton fabric or other raw materials used by the Company will
not have a material adverse effect on the Company's results of operations.
Management of Growth. Since its inception, the Company has experienced
rapid growth in sales. No assurance can be given that the Company will be
successful in maintaining or increasing its sales in the future. Any future
growth in sales will require additional working capital and may place a
significant strain on the Company's management, management information systems,
inventory management, production capability, distribution facilities and
receivables management. Any disruption in the Company's order processing,
sourcing or distribution systems could cause orders to be shipped late, and
under industry practices, retailers generally can cancel orders or refuse to
accept goods due to late shipment. Such cancellations and returns would result
in a reduction in revenue, increased administrative and shipping costs and a
further burden on the Company's distribution facilities. In addition, the
failure to timely enhance the Company's operating systems, or unexpected
difficulties in implementing such enhancements, could have a material adverse
effect on the Company's results of operations.
Foreign Manufacturing. Approximately 45% of the Company's products were
produced offshore during the first nine months of 1999. As a result, the
Company's operations are subject to the customary risks of doing business
abroad, including, among other things, transportation delays, economic or
political instability, currency fluctuations, restrictions on the transfer of
funds and the imposition of tariffs, export duties, quotas and other trade
restrictions.
Year 2000 Issue. The Year 2000 issue is primarily the result of computer
programs being written using two-digits, as opposed to four digits, to indicate
the year. Any of the Company's computer programs or hardware that have time-
sensitive software or embedded chips may be unable to interpret dates beyond the
year 1999. This could result in a system failure or miscalculations, leading to
disruption in operation of such systems, including, among other things,
inability to process transactions, send invoices or engage in similar normal
business activities. In 1997, the Company designated the MIS department to
coordinate the project of Year 2000 compliance.
The Company has evaluated, replaced and/or upgraded its information systems
in an effort to make them Year 2000 compliant, and remediation efforts have been
completed for its critical computer systems. This includes the implementation of
a new packaged software system, hardware and EDI system for its U.S. and Mexico
operations. The developer of this information system has provided the Company
with written assurance that the system will correctly function across the year
2000, as verified by previous system tests. The Company's Hong Kong operations
have also completed remediation and software and hardware upgrades, including
testing. The testing and remediation of voice/data communication systems, such
as network hubs, routers and phone/voice mail, was completed in the third
quarter of 1999. Although the Company expects successful completion of
remediation and testing by the target dates, foreign testing and implementation
of procedures may not be as timely as in the United States.
As part of the Company's compliance program, formal communications with
customers, suppliers and other support service providers have been initiated.
All of the Company's customers which are established as EDI trading partners are
testing or have confirmed interface capability of the EDI program. To date, the
Company is not aware of any supplier or subcontractor with a Year 2000 issue
that would materially affect the
13
<PAGE>
Company's results of operations, liquidity or capital resources. The Company
will continue to monitor the Year 2000 compliance of third parties with which it
does business.
The costs associated with the Year 2000 Compliance Program are not expected
to be substantial. The Company does not expect future costs to have a material
effect on the Company's financial condition or results of operations.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, delays in the implementation of the new and
upgraded information systems, or a failure to identify all Year 2000
dependencies in the Company's systems and the systems of its suppliers and
customers could have material adverse consequences, including inability to take
customer orders, manufacture and ship products, invoice customers or collect
payments. In addition, disruptions in the economy generally resulting from Year
2000 issues could also adversely affect the Company. The amount of potential
loss of revenue cannot be reasonably estimated at this time.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of income as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.6 82.9 82.2 81.8
------ ------ ------ ------
Gross profit 17.4 17.1 17.8 18.2
Selling and distribution expenses 3.4 2.7 3.1 2.7
General and administration expenses * 5.8 4.5 5.9 5.6
------ ------ ------ ------
Income from operations 8.2 9.9 8.8 9.9
Interest expense (1.2) (0.7) (1.1) (0.6)
Other income 0.0 0.5 0.2 0.3
------ ------ ------ ------
Income before income taxes 7.0 9.7 7.9 9.6
Income taxes 2.6 3.5 2.9 3.5
------ ------ ------ ------
Net income 4.4% 6.2% 5.0% 6.1%
====== ====== ====== ======
</TABLE>
* Includes amortization of excess of cost over fair value of net assets
acquired.
Third Quarter 1999 Compared to Third Quarter 1998
Net Sales decreased by $4.4 million, or 3.8%, from $114.9 million in the third
quarter of 1998 to $110.5 million in the third quarter of 1999. The decrease in
net sales included an aggregate increase in sales of $14.8 million to mass
merchandisers and $4.1 million as a result of the MGI, Rocky and Chazzz
acquisitions (the "Acquisitions"), as offset by an aggregate decrease of $25.2
million to divisions of the Limited. Sales to divisions of The Limited in the
third quarter of 1999 amounted to 35.6% of total net sales, as compared to 63.5%
in the comparable prior period, whereas sales to mass merchandisers were 25.2%
of total net sales as compared to 11.4% in the same period last year. The
Company expects that sales to The Limited will continue to be in the range of
approximately 35%-45% of total sales for the foreseeable future.
Gross Profit (which consists of net sales less product costs, duties and direct
costs attributable to production) for the third quarter of 1999 was $19.3
million, or 17.4% of net sales, compared to $19.7 million, or 17.1% of net
sales, in the comparable prior period, an increase in gross profit of 0.3%.
14
<PAGE>
Selling and Distribution Expenses were $3.8 million in the third quarter of 1999
and $3.1 million in the third quarter of 1998. As a percentage of net sales,
these expenses increased from 2.7% in the third quarter of 1998 to 3.4% in the
third quarter of 1999. This was the result of higher freight costs in order to
meet delivery schedules.
General and Administrative Expenses (which include amortization of excess of
cost over fair value of net assets acquired) increased from $5.3 million in the
third quarter of 1998 to $6.4 million in the third quarter of 1999. As a
percentage of net sales, these expenses increased from 4.5% in the third quarter
of 1998 to 5.8% in the third quarter of 1999. This percentage increase included
decreases in bonus accruals, as offset by increases in amortization of the
excess of cost over fair value of net assets acquired, allowance for bad debts,
and expenses related to the Acquisitions. The allowance for bad debt includes an
allowance for returns and discounts as well as bad debt expense. After adjusting
for these items, general and administrative expenses increased by $1,149,000 in
the third quarter of 1999 as compared to the third quarter of 1998, as a result
of overhead related to the Mexico initiatives.
Operating Income in the third quarter of 1999 was $9.0 million, or 8.2% of net
sales, compared to $11.4 million, or 9.9% of net sales, in the comparable prior
period, a deccrease in operating income of 1.7%. The 1.7% decrease in operating
income as a percentage of net sales is attributable to a 0.3% increase in gross
profit margin and a 2.0% decrease in operating expenses.
Other Income decreased from $526,000, or 0.5% of net sales, in the third quarter
of 1998, to $62,000, or 0.05% of net sales, in the third quarter of 1999. The
decrease primarily resulted from a decrease in management fee income from
$377,000, or 0.3% of net sales, in the third quarter of 1998 to $0 in the third
quarter of 1999.
First Nine Months 1999 Compared to First Nine Months 1998
Net Sales increased by $25.1 million, or 9%, from $279.3 million in the first
nine months of 1998 to $304.4 million in the first nine months of 1999. The
increase in net sales included an aggregate increase in sales of $34.8 million
to mass merchandisers and $25.1 million as a result of the Acquisitions, as
offset by an aggregate decrease of $46.9 million to divisions of The Limited.
Overall, sales to divisions of The Limited in the first nine months of 1999
amounted to 39.9% of total net sales, as compared to 63.3% in the comparable
prior period, whereas aggregate sales to mass merchandisers were 27.3% of total
net sales as compared to 17.3% in the same period last year. As previously
disclosed, the Company expects that sales to The Limited will continue to be in
the range of approximately 35% - 45% of total sales for the foreseeable future.
Gross Profit (which consists of net sales less product costs, duties and direct
costs attributable to production) for the first nine months of 1999 was $54.3
million, or 17.8% of net sales, compared to $50.9 million, or 18.2% of net
sales, in the comparable prior period, a decrease in gross profit of 0.4%.
Selling and Distribution Expenses increased from $7.6 million in the first nine
months of 1998 to $9.6 million in the first nine months of 1999. As a percentage
of net sales, these expenses increased from 2.7% in the first nine months of
1998 to 3.1% in the first nine months of 1999.
General and Administrative Expenses (which include amortization of excess of
cost over fair value of net assets acquired) increased from $15.7 million in the
first nine months of 1998 to $17.9 million in the first nine months of 1999. As
a percentage of net sales, these expenses increased from 5.6% in the first nine
months of 1998 to 5.9% in the first nine months of 1999. This percentage
increase included decreases in bonus accruals and the allowance for bad debt and
expenses related to the Acquisitions as offset by increases in amortization of
the excess of cost over fair value of net assets acquired. The allowance for bad
debt includes an allowance for returns and discounts as well as bad debt
expense. After adjusting for these items, general
15
<PAGE>
and administrative expenses increased by $2.9 million in the first nine months
of 1999 as compared to the first nine months of 1998, as a result of overhead
related to the Mexico initiatives.
Operating Income in the first nine months of 1999 was $26.7 million, or 8.8% of
net sales, compared to $27.6 million, or 9.9% of net sales, in the comparable
prior period, a decrease in operating income of 1.1%. The 1.1% decrease in
operating income as a percentage of net sales is attributable to a 0.4% decrease
in gross profit margin and a 0.7% increase in operating expenses.
Other Income decreased from $759,000, or 0.3% of net sales, in the first nine
months of 1998 to $583,000, or 0.2% of net sales, in the first nine months of
1999. This decrease primarily resulted from $237,000 and $431,000 of interest
and management fee income, respectively, in the first nine months of 1998 as
compared to $268,000 and $0 of such income, respectively, in the first nine
months of 1999.
Liquidity and Capital Resources
The Company's liquidity requirements arise from acquisitions and the
funding of its working capital needs, principally inventory, finished goods
shipments-in-transit, work-in-process and accounts receivable, including
receivables from the Company's contract manufacturers that relate primarily to
fabric purchased by the Company for use by those manufacturers. (In some
instances, the Company purchases fabric for delivery directly to the
manufacturer's factory. The Company then invoices the manufacturer for the
fabric, and reduces payments to the manufacturer for finished goods by the
amount of outstanding invoices.) The Company's primary sources for working
capital and capital expenditures are cash flow from operations, borrowings under
the Company's bank credit facilities, issuance of long-term debt (including debt
to or arranged by vendors of equipment purchased for the Mexican twill and
production facility) and the proceeds from the exercise of stock options.
During the first nine months of 1999, net cash provided by operating
activities was $12.1 million, which resulted primarily from net income of $15.1
million and a net decrease in working capital items of 3.0 million. Cash flow
used in investing activities was $64.7 million, which primarily consisted of the
Jamil, Chazzz and Famian Acquisitions and investment in capital expenditures
related to vertical integration programs in Mexico. Cash flow provided by
financing activities equaled $52.5 million, a result of a $26.2 million increase
in bank borrowings, issuance of notes of $22.5 million, (including a $2.2
million noninterest-bearing promissory note convertible into 62,550 shares of
common stock of the Company to fund a portion of the Chazzz Acquisition, the
issuance of $3 million Promissory Notes to fund a portion of the Famian
Acquisition) and $3.7 million of proceeds from the exercise of stock options.
The Company has credit facilities of $33 million and $10 million with the
Hongkong and Shanghai Banking Corporation Limited ("HKSB") and Standard
Chartered Bank ("SCB"), respectively, for borrowings and the purchase and
exportation of finished goods. Under these facilities, the Company may arrange
for the issuance of letters of credit and acceptances, as well as cash advances.
These facilities are subject to review at any time and the right of either
lender to demand payment at any time. Interest on cash advances under HKSB's
facility accrues at HKSB's prime rate for lending U.S. dollars plus one-half to
three-quarters percent per annum. As of September 30, 1999, HKSB's U.S. dollar
prime rate equaled eight and one quarter percent. Interest on cash advances
under SCB's facility accrues at SCB's prime rate for lending Hong Kong dollars.
As of September 30, 1999, SCB's Hong Kong dollar prime rate equaled eight and
one half percent. These facilities are subject to certain restrictive covenants
including a provision that the aggregate net worth, as adjusted, of the Company
will exceed $30 million, that the Company will not incur two consecutive
quarterly losses and that the Company will maintain a certain debt to equity
ratio.
The Company has accounts receivable-secured credit facilities with The CIT
Group/Commercial Services, Inc. ("CIT") and Finova Capital Corporation ("FCC").
Effective January 1, 1998, the Company substantially eliminated its use of a
factor for credit verification and approval purposes on major accounts.
16
<PAGE>
The Company may receive advances from FCC of up to 90% of certain accounts
receivable, and CIT will advance up to 100% of the amount of other accounts
receivable plus an over-advance of up to $15 million through November 30, 1999.
The Company is currently negotiating to replace this facility. The CIT facility
is subject to the same restrictive covenants as apply to the HKSB and SCB
facilities. Interest on advances from both FCC and CIT accrues at the rate of
one and one-quarter percent below the bank's respective prime rates or, at the
option of the Company, one and one-quarter percent over the respective LIBOR
rates, except for the CIT over-advance for which interest accrues at two percent
over the LIBOR rate. As of September 30, 1999, the prime rates averaged eight
and a quarter percent and the LIBOR rates averaged five and eight tenths
percent.
The Company has an unsecured $10 million credit facility with SCB maturing
December 29, 1999 which is available for general corporate purposes. This
facility is cross-defaulted to the Company's other bank credit facilities and
interest on advances accrues at the rate of one and one-quarter percent over
LIBOR.
The Company guarantees a $5 million credit facility for Rocky Apparel, LLC,
a wholly-owned subsidiary of the Company which acquired the partnership
interests in Rocky Apparel, L.P., a Delaware limited partnership.
The Company has received commitments totaling $5.2 million from Bank of
America Leasing for loans secured by equipment located in the Puebla, Mexico
denim mill. Interest will accrue at the rate of two and one-quarter percent over
the LIBOR rate and the final maturity of these loans will be in the year 2004.
These facilities will be subject to the same restrictive covenants as apply to
the HKSB and SCB facilities.
The Company has financed its operations from its cash flow from operations,
borrowings under its bank credit facilities, issuance of long-term debt
(including debt to or arranged by vendors of equipment purchased for the Mexican
twill and production facility) and the proceeds from the exercise of stock
options. The Company believes that its cash flow from all sources of cash should
be sufficient to fund its existing operations for the foreseeable future.
The Company has commenced a capital investment program in Mexico under
which it will invest approximately $170 million in cash and equities in the
acquisition of a denim mill and the construction of a facility which when fully
operational will spin, weave and dye twill fabric and provide the capability to
cut, launder and ship finished garments. The Company may seek to finance future
capital investment programs through various methods, including, but not limited
to, borrowings under the Company's bank credit facilities, issuance of long-term
debt, leases and long-term financing provided by the sellers of facilities or
the suppliers of certain equipment used in such facilities. Through September
30, 1999, capital expenditures aggregating $95 million have been made with
respect to vertical integration programs initiated by the Company, including $22
million in cash paid on May 7, 1999 and 1,724,000 shares of the Common Stock of
the Company issued as of May 24, 1999. The success of the Company's vertical
integration strategy may depend, in part, on its ability to obtain financing
therefor. There can be no assurance that such financing, if and when required,
will be available on terms acceptable to the Company, or at all.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
On October 2, 1999, summons were issued by the Hong Kong Special
Administrative Region Magistrate's Court to Tarrant Company Limited
("TCL"), a wholly owned Hong Kong subsidiary of the Company. The
summons allege that TCL exported apparel to the United States which it
claimed was of Hong Kong origin, using Hong Kong export licenses, when
in fact the goods were not of Hong Kong origin, in violation of Hong
Kong's Import and Export Ordinance. An initial hearing on this matter
is scheduled for December 28, 1999. TCL believes that any violations
of Hong Kong law resulted from actions of its non-related suppliers.
Depending on the final outcome of this legal proceeding, TCL's exports
to the United States may become subject to significantly increased
Customs Service scrutiny, which could cause delays in the entry of
goods into the United States, or in a worst case scenario, prohibit
the entry of such goods into the United States. TCL believes it has
strong defenses to these charges, and will vigorously defend itself
against them. The Company is confident that the policies and
procedures are in place to provide maximum assurances that our
suppliers are in strict compliance with all international trade
regulations.
In September 1999, the Company was served with a complaint in an
action brought in the Supreme Court of the State of New York, New York
County, by DLLC and Direct Corp. LLC ("Direct"), as plaintiffs. The
complaint alleges that the Company and DLLC entered into a joint
venture for the purpose of producing and selling apparel products.
The complaint further alleges that the Company breached its
obligations under the joint venture. The complaint seeks monetary
damages of $50,000,000, plus interest, and further seeks permanent
injunctive relief.
The Company has submitted its Answer to the Complaint which generally
denies the principal allegations therein, denies any liability to
plaintiffs and alleges a number of affirmative defenses to the claims
made by plaintiffs. No discovery has taken place in the action to
date.
The Company believes that it has valid defenses to the claims set
forth in the plaintiff's complaint and intends to vigorously defend
against said claims.
A subsidiary of the Company has commenced a separate action against
plaintiffs in the Superior Court of the State of California, Los
Angeles County, seeking damages of $623,138.90 for goods sold and
delivered to plaintiffs.
Item 2. Changes in Securities. None.
---------------------
Item 3. Defaults Upon Senior Securities. None.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. None.
---------------------------------------------------
18
<PAGE>
Item 5. Other Information.
-----------------
On August 11, 1999, the Company announced that Barry Aved has been
appointed President of the Company, effective September 7, 1999. Todd
Kay, previously President of the Company, assumed the position of Vice
Chairman.
On August 27, 1999, the Company announced that Scott Briskie has been
appointed Chief Financial Officer of the Company, effective September
13, 1999. Mark B. Kristof, previously was Vice President-Finance,
Chief Financial Officer and Director prior to his departure from the
Company.
On September 7, 1999, the Company announced that Nicolas Berggruen had
been elected to the Board of Directors.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits: Reference is made to the Index to Exhibits on page 21
for a description of the exhibits filed as part of this Report on
Form 10-Q.
(b) Reports on Form 8-K: None.
19
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TARRANT APPAREL GROUP
Date: November 15, 1999 By: /s/ Scott Briskie
-------------------------------
Scott Briskie
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
20
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit
Number Description
- ------ -----------
10.75 Noncompetition Agreement dated as of August 1, 1999, by and among
Tag Mex, Inc., NO! Jeans, Inc., Antonio Haddad Haddad, Tarrant
Apparel Group and the shareholders of Industrial Exportadora
Famian, S.A. de C.V. and Coordinados Elite, S.A. de C.V.
10.77 Loan Agreement dated September 1, 1999 by and between General
Electric Capital Corporation and Tarrant Apparel Group
10.77.1 Amendment No. 1 to Loan Agreement dated September 12, 1999 by and
between General Electric Capital Corporation and Tarrant Apparel
Group
10.78 Promissory Note dated September 1, 1999 to pay to the order of
General Electric Capital Corporation the loan amount referred to
in Exhibit 10.77
10.79 Corporate Guaranty dated September 1, 1999 by Tarrant Mexico, S.
De R.L. de C.V. in connection with loan agreement referred to in
Exhibit 10.77
10.79.1 Amendment No. 1 to Corporate Guaranty dated September 12, 1999 by
Tarrant Mexico, S. De R.L. de C.V. in connection with loan
agreement referred to in Exhibit 10.77
10.80 Master Security Agreement made as of September 1, 1999 by and
between General Electric Capital Corporation and Tarrant Mexico,
S. de R.L. de C.V. in connection with loan agreement referred to
in Exhibit 10.77
10.80.1 Amendment No. 1 to Master Security Agreement made as of September
12, 1999 by and between General Electric Capital Corporation and
Tarrant Mexico, S. de R.L. de C.V. in connection with loan
agreement referred to in Exhibit 10.77
27 Financial Data Schedule
21
<PAGE>
EXHIBIT 10.75
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT is made and effective as of the first day of
August, 1999, by and among those individuals whose names appear on the signature
pages under the caption "Shareholders" (collectively, the "Shareholders"), TAG
MEX, INC., a California corporation, and NO! JEANS, INC., a California
corporation (collectively, the "Purchasers"), ANTONIO HADDAD HADDAD as the
paying agent for the Shareholders (the "Paying Agent") and, with respect only to
Section 3.18, TARRANT APPAREL GROUP, a California corporation (the "Parent"),
with respect to the following facts:
A. Industrial Exportadora Famian, S.A. de C.V. and Coordinados Elite,
S.A. de C.V., corporations formed under the laws of the United Mexican
States (the "Companies"), are engaged in the production of apparel.
B. The Shareholders own substantially all the issued and outstanding
capital stock of the Companies.
C. The Purchasers are wholly-owned subsidiaries of the Parent.
D. Pursuant to that certain Agreement for Purchase of Stock dated as of
August 1, 1999 (the "Stock Purchase Agreement"), the Purchasers have
purchased from the Shareholders and the Shareholders have sold to the
Purchasers, substantially all of the issued and outstanding shares of
the capital stock of the Companies (the "Shares").
E. As a material inducement to the Purchaser entering into the Stock
Purchase Agreement, and consummating the transactions contemplated
thereby, the Shareholders have agreed to enter into this Agreement.
ACCORDINGLY, subject to the terms and conditions of this Agreement,
and on the basis of the premises, representations, warranties and agreements
contained herein, the parties hereto agree as follows:
1. NONCOMPETITION
--------------
1.1. Competitive Activity. As used in this Agreement, the term
--------------------
"Competitive Activity" shall mean any participation in, assistance of,
employment by, ownership of any interest in, acceptance of business from or
assistance, promotion or organization of any person, partnership, corporation,
firm, association or other business organization, entity or enterprise which,
directly or indirectly, is engaged in, or hereinafter engages in, the
development, production, marketing, or selling of any product or service which
is the same as or in competition with any line of business in which any of the
Companies are now engaged, whether as an agent, consultant, employee, officer,
director, investor, partner, shareholder, proprietor or in any other individual
or representative capacity, but excluding the holding for investment of less
than five percent (5%) of the outstanding securities of any corporation which
are regularly traded on a recognized stock exchange or The Nasdaq Stock Market.
1.2. Restriction on Competitive Activities. Until December 31, 2002, each
-------------------------------------
of the Shareholders shall refrain, without the prior written consent of the
Purchasers in each instance, from engaging in any Competitive Activity.
1
<PAGE>
2. NONCOMPETE PAYMENT
------------------
2.1. Noncompete Payment.
------------------
(a) As full payment for the noncompetition agreements contained in
Section 1.2, the Purchasers shall pay to the Shareholders the sum of
U.S.$8,000,000 (the "Noncompete Payment"), subject to adjustment as provided
below and without interest, in the installments and on the dates (a "Payment
Date") set forth below:
<TABLE>
<CAPTION>
Payment
Amount Date
------ ----
<S> <C>
U.S. $ 833,333.34 03/31/00
U.S. $3,000,000.00 08/31/00
U.S. $1,666,666.66 03/31/01
U.S. $1,666,666.66 03/31/02
U.S. $ 833,333.34 09/30/02
</TABLE>
(b) The Noncompete Payment shall be allocated among the
Shareholders as set forth on Schedule 2.1(b).
---------------
(c) Each of the Shareholders hereby irrevocably constitutes and
appoints the Paying Agent as the agent of such Shareholder to receive any
portion of the Noncompete Payment payable to such Shareholder hereunder and to
hold or disburse the same as directed by such Shareholder. The Purchasers shall
be entitled to rely on any notice, certificate, affidavit, letter, document or
other communication which they believe to be genuine and to have been signed or
sent by the Paying Agent with respect to the payment of any portion of the
Noncompete Payment, and may rely on statements contained therein without further
inquiry or investigation.
(d) Notwithstanding anything to the contrary contained above, the
amount payable by the Purchasers pursuant to Section 2.1(a) on any Payment Date
(except August 31, 2000) shall be reduced dollar for dollar in the event that
the Companies shall fail to realize an aggregate adjusted pre-tax income for the
period related to such Payment Date in an amount computed as follows :
T1 = (P//1// x I//1//) + (S x I//2//) + (P//2// x I//1//) - T//2//
where:
T//1// = Target adjusted pre-tax income for the period
P//1// = Number of units of pants produced in such period, but not to
exceed U
U = Target number of units to be produced in the period
I//1// = Target adjusted pre-tax income per unit for pants produced
in the period
S = Number of units of shorts produced in the period
I//2// = Target adjusted pre-tax income per unit for shorts produced
in the period
P//2// = U - P//1// - S, but not less than zero
T//2// = (U divided by W) x P//3//
W = Number of full weeks in the period
P//3// = Average selling price of pants produced in the period
The target number of units to be produced, adjusted pre-tax income
per unit for pants and shorts and number of weeks in each period are set forth
in the following table:
2
<PAGE>
<TABLE>
<CAPTION>
Period Payment Date Production Adjusted Pre-Tax Income*
- ------------------ ------------ ------------------------------------------------
(Units)
-------
Pants Shorts
------------------- -------------------
<S> <C> <C> <C> <C>
07/28/99-12/31/99 03/31/2000 2.5 million U.S. $0.80 per unit U.S. $0.60 per unit
01/01/00-12/31/00 03/31/2001 5.0 million U.S. $0.90 per unit U.S. $0.70 per unit
2.5 million U.S. $0.50 per unit** U.S. $0.40 per unit**
01/01/01-12/31/01 03/31/2002 5.0 million U.S. $1.00 per unit U.S. $0.80 per unit
5.0 million U.S. $0.50 per unit** U.S. $0.40 per unit**
01/01/02-06/30/02 09/30/2002 2.5 million U.S. $1.00 per unit U.S. $0.80 per unit
2.5 million U.S. $0.50 per unit** U.S. $0.40 per unit**
</TABLE>
____________________
* The targeted adjusted pre-tax income shall be adjusted as follows: (i) such
amount shall be decreased by such allocation of the overhead of the
Companies (excluding any amounts payable to key employees pursuant to the
Employment Agreements referred to in Section 5.1(d) of the Stock Purchase
Agreement or any amounts payable pursuant to the leases described in
Section 5.1(f) of the Stock Purchase Agreement) or any of their parent,
subsidiary or affiliated companies as may be reasonably attributable to the
operation of the Companies from time to time. Each such adjustment shall
apply retroactively commencing on the immediately preceding Payment Date.
In the event that either the exchange rate of the Mexican peso to the
United States dollar or the consumer price index shall increase or decrease
in a material amount, the parties shall in good faith seek to amend the
foregoing targets to effect the purposes thereof.
** If not washed by the laundry facilities purchased pursuant to the Stock
Purchase Agreement.
(e) Notwithstanding anything to the contrary contained herein,
the Purchasers shall have the right to set-off against any amount otherwise due
pursuant to Section 2.1(a) any obligation of the Shareholders to the Purchasers
under this Agreement or the Stock Purchase Agreement, including, but not limited
to, a claim for indemnification or contribution under Section 3.2 hereof or
Section 6.2 thereof (a "claim"); provided, however, that the Purchasers first
--------
shall have delivered to the Shareholders in writing a summary description of the
factual and legal bases for such claim and an estimate of the amount thereof. In
the event that a claim is based upon the demand of a person other than the
Purchasers, which demand is finally determined by a decision from which no
appeal may be taken, the amount of such claim shall be deemed to have been
finally determined thereby and not to be subject to further arbitration.
(f) The Purchasers shall have the right, but not the obligation,
to pay any amount payable by, or to perform any obligation of, any of the
Shareholders if the Purchasers, in their reasonable discretion, determines that
the failure to pay such amount or to perform such obligation could have a
material adverse effect on the Companies or the business of the Purchasers
associated therewith; provided, however, that before the Purchasers shall pay
--------
any such amount or perform any such obligation they first shall notify the
respective Shareholder in writing of their intention to do so and shall give
such Shareholder ten (10) days to cure or contest such failure. The Noncompete
Payment shall be reduced by the cost to the Purchasers of any such amount paid
or obligation performed. The Purchasers shall have the right (i) to set off any
such amount or cost against any amount then payable to the Shareholders under
this Agreement or the Stock Purchase Agreement or any agreement or instrument
delivered pursuant hereto or thereto or (ii) to demand that the Shareholders,
jointly and severally, reimburse the Purchasers therefor promptly on demand, and
the Shareholders, jointly and severally, shall do so. The Purchasers' rights
under this Section
3
<PAGE>
2.1(f) shall be in addition to any other rights or remedies of the Purchasers
under this Agreement, the Stock Purchase Agreement or applicable law.
(g) In the event that any Shareholder's employment by
Industrial Exportadora Famian, S.A. de C.V. ("Famian") pursuant to an Employment
Agreement executed and delivered pursuant to Section 5.1(d) of the Stock
Purchase Agreement is terminated by Famian without "cause" (as defined below),
then the Purchasers shall pay to all the Shareholders the Noncompete Payment on
the dates otherwise due hereunder, but determined without regard to Section
2.1(d). The term "cause" shall mean the failure or refusal of the Shareholder to
timely and fully perform any of his duties under such Employment Agreement.
2.2. Injunctive Relief. Each of the Shareholders hereby acknowledges and
-----------------
agrees that it would be difficult to fully compensate the Purchasers for damages
resulting from the breach or threatened breach of Section 1.2 and, accordingly,
that the Purchasers shall be entitled to temporary and injunctive relief,
including temporary restraining orders, preliminary injunctions and permanent
injunctions, to enforce such provision, without the necessity of proving actual
damages and without the necessity of posting any bond or other undertaking in
connection therewith. This provision with respect to injunctive relief shall
not, however, diminish the Purchasers' right to claim and recover damages.
2.3. Liquidated Damages. Each of the Shareholders acknowledges and
------------------
agrees that the breach or threatened breach of Section 1.2 would result in
substantial damage to the business of the Companies and that it is and will be
impracticable to determine the actual monetary amount of such damages.
Accordingly, the Shareholders and the Purchasers hereby agree that such damages
shall be presumed to be in an amount equal to the Noncompete Payment and, in the
event of the breach or the threatened breach of Section 1.2 by any Shareholder,
the Shareholders, jointly and severally, shall pay to the Purchasers in cash an
amount equal to the Noncompete Payment and, to the extent that the Purchasers
then owe any amount under this Agreement or the Stock Purchase Agreement to the
Shareholders, the Purchasers may set off against such amount a sum equal to the
Noncompete Payment. This provision with respect to the liquidated damages
reflects the parties' best estimate of the actual damages that would be
sustained by the Purchasers in the event of the breach or threatened breach of
Section 1.2 and not a penalty or forfeiture. The Shareholders' obligations under
this Section 2.3 shall be in addition to any liability they may have to the
Purchasers as a result of the breach or threatened breach of Section 1.2.
Notwithstanding anything to the contrary in the Section 2.3 or in any Employment
Agreement, the maximum amount payable with respect to a breach of Section 1.2 is
US$5,000,000.00 (Five million dollars 00/100 U.S. currency).
2.4 Offset of Expenses. The Purchasers shall cause the Companies to
------------------
reimburse the Shareholders for such costs and expenses incurred by them in
performing, or causing to be performed, any preventative or corrective actions
described in Schedule 4.4 of the Agreement for Purchase of Stock but only to the
extent that the Companies realize aggregate adjusted pre-tax income which
exceeds the targets set forth in Section 2.1(d) hereof by more than U.S.$0.10
per unit.
3. MISCELLANEOUS
-------------
3.1. Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations, warranties and agreements made by the parties in this Agreement
(including, but not limited to, statements contained in any exhibit, schedule
or certificate or other instrument delivered by or on behalf of any party hereto
or in connection with the transactions contemplated hereby) shall survive the
consummation of the transaction contemplated hereby notwithstanding any
investigations, inspections, examinations or audits made by or on behalf of any
party.
3.2. Indemnification.
---------------
(a) The Shareholders (the "Indemnifying Parties"), jointly and
severally, shall indemnify, defend and hold harmless the Purchasers and their
officers, directors, shareholders, employees, affiliates, agents, successors and
assigns, and any person who controls or is deemed to control any of them (the
"Indemnified Parties"), from, against and in respect of any and all payments,
damages, claims, demands,
4
<PAGE>
losses, expenses, costs, obligations and liabilities (including, but not limited
to, reasonable attorneys' fees and costs, and the costs of investigation and
preparation) (a "Loss") which, directly or indirectly, arise or result from or
are related to any breach by any of the Indemnifying Parties of any of his or
her representations, warranties, covenants or commitments under this Agreement
or the Stock Purchase Agreement or any agreement or instrument delivered
pursuant hereto or thereto, including, but not limited to, the Employment
Agreements. Consummation of the transactions contemplated under this Agreement
or the Stock Purchase Agreement shall not be deemed or construed to be a waiver
of any right or remedy of any Indemnified Party, nor shall this section or any
other provision of this Agreement or the Stock Purchase Agreement be deemed or
construed to be a waiver of any ground of defense by it. The Indemnifying
Parties' obligations hereunder shall be in addition to any liability that they
or any other person otherwise may have to the Indemnified Parties, and shall be
binding upon, and inure to the benefit of, their heirs, representatives,
successors and assigns, and shall inure to the benefit of the heirs,
representatives, successors and assigns of each Indemnified Party. The
obligation to advance or pay promptly on demand all amounts as they are incurred
shall exist irrespective of the ultimate final judicial determination, and in
the event of a dispute about amounts owed, such amounts shall be advanced as
they are incurred pending resolution and final judicial determination.
(b) The Purchasers (the "Indemnifying Parties") shall indemnify,
defend and hold harmless, the Shareholders and their respective employees,
affiliates, agents, successors and assigns (the "Indemnified Parties"), from,
against and in respect of any and all payments, damages, claims, demands,
losses, expenses, costs, obligations and liabilities (including, but not limited
to, reasonable attorneys' fees and costs, and the costs of investigation and
preparation) (a "Loss") which, directly or indirectly, arise or result from or
are related to any breach by any of the Indemnifying Parties of any of its
representations, warranties, covenants or commitments under this Agreement or
the Stock Purchase Agreement.
(c) Third-Party Claims. The Indemnified Party shall promptly
------------------
notify the Indemnifying Parties of the existence of any claim, demand or other
matter involving liabilities to third parties to which the Indemnifying Parties'
indemnification obligations could apply and shall give the Indemnifying Parties
a reasonable opportunity to defend the same at their expense and with counsel of
their own selection (who shall be approved by the Indemnified Party, which
approval shall not be withheld unreasonably); provided, however, that (i) the
--------
Indemnified Party shall at all times also have the right to fully participate in
the defense at its own expense, (ii) if, in the reasonable judgment of the
Indemnified Party, based upon the written advice of counsel, a conflict of
interest may exist between the Indemnified Party and any of the Indemnifying
Parties, the Indemnifying Parties shall not have the right to assume such
defense on behalf of such Indemnified Party, and (iii) the failure to so notify
the Indemnifying Parties shall not relieve the Indemnifying Parties from any
liabilities that they may have hereunder or otherwise, except to the extent that
such failure so to notify the Indemnifying Parties materially prejudices the
rights of the Indemnifying Parties. If the Indemnifying Parties shall, within a
reasonable time after such notice, fail to defend, the Indemnified Party shall
have the right, but not the obligation, to undertake the defense of, and to
compromise or settle the claim or other matter on behalf, for the account and at
the risk and expense of the Indemnifying Parties. The Indemnifying Parties shall
not compromise or settle the claim or other matter for any consideration other
than the payment of money without the prior written consent of the Indemnified
Parties. The Indemnified Parties shall make available all information and
assistance that the Indemnifying Parties may reasonably request; provided,
--------
however, that any associated expenses shall be paid by the Indemnifying Parties
as incurred.
3.3. Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing in the English language and shall be deemed to
have been given (i) if personally delivered, when so delivered, (ii) if mailed,
one (1) week after being placed in the United States mail, registered or
certified, postage prepaid, addressed to the party to whom it is directed at the
address set forth on the signature page hereof or (iii) if given by telecopier,
when such notice or communication is transmitted to the telecopier number set
forth on the signature page hereof and written confirmation of receipt is
received. Each of the parties shall be entitled to specify a different address
by giving the other parties notice as aforesaid.
3.4. Entire Agreement. This Agreement and the schedules and exhibits
----------------
hereto (which are incorporated herein by reference) constitute the entire
agreement between the parties hereto pertaining to
5
<PAGE>
the subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussions, whether oral or written, relating to the subject
matter of this Agreement. No supplement, modification, waiver or termination of
this Agreement shall be valid unless executed by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provisions hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver, unless otherwise expressly
provided.
3.5. Headings. Section and subsection headings are not to be considered
--------
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
3.6. Successors and Assigns. All of the terms, provisions and obligations
----------------------
of this Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, representatives, successors and
assigns.
3.7. Governing Law. The validity, construction and interpretation of this
-------------
Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
3.8. Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each one of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
3.9. Third Parties. Nothing in this Agreement, expressed or implied, is
-------------
intended to confer upon any person other than the parties hereto and their
respective heirs, representatives, successors and assigns any rights or remedies
under or by reason of this Agreement.
3.10. Attorneys' Fees. In the event any party takes legal action to
---------------
enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's expenses (including, but not limited to,
reasonable attorneys' fees and costs) incurred in such action.
3.11. Further Assurances. Each party hereto shall, from time to time at
------------------
and after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other parties reasonably may
request to carry out the purpose and intent of this Agreement.
3.12. Arbitration. Any controversy arising out of or relating to this
-----------
Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of
California. The board of arbitrators shall convene at a place mutually
acceptable to the parties in the State of California and, if the place of
arbitration cannot be agreed upon, arbitration shall be conducted in Los
Angeles. The parties hereto agree to accept the decision of the board of
arbitrators, and judgment upon any award rendered hereunder may be entered in
any court having jurisdiction thereof. Neither party shall institute a
proceeding hereunder until that party has furnished to the other party, by
registered mail, at least thirty (30) days prior written notice of its intent to
do so.
3.13. Construction. This Agreement was reviewed by legal counsel for each
------------
party hereto and is the product of informed negotiations between the parties
hereto. If any part of this Agreement is deemed to be unclear or ambiguous, it
shall be construed as if it were drafted jointly by the parties. Each party
hereto acknowledges that no party was in a superior bargaining position
regarding the substantive terms of this Agreement.
3.14. Consent to Jurisdiction. Subject to Section 3.12, each party
-----------------------
hereto, to the fullest extent it may effectively do so under applicable law,
irrevocably (i) submits to the exclusive jurisdiction of any court of the State
of California or the United States of America sitting in the City of Los Angeles
over any suit, action or proceeding arising out of or relating to this
Agreement, (ii) waives and agrees not to assert,
6
<PAGE>
by way of motion, as a defense or otherwise, any claim that it is not subject to
the jurisdiction of any such court, any objection that it may now or hereafter
have to the establishment of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum, (iii)
agrees that a final judgment in any such suit, action or proceeding brought in
any such court shall be conclusive and binding upon such party and may be
enforced in the courts of the United States of America, the State of California
or the United Mexican States (or any other courts to the jurisdiction of which
such party is or may be subject) by a suit upon such judgment and (iv) consents
to process being served in any such suit, action or proceeding by mailing a copy
thereof by United States mail, registered or certified, postage prepaid, return
receipt requested, to CT Corporation at 818 West Seventh Street, Los Angeles,
California 90017 (and each party hereby irrevocably appoints CT Corporation as
its lawful agent to accept such service of process on behalf of such party).
Each party agrees that such service (i) shall be deemed in every respect
effective service of process upon such party in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to such party.
3.15. Expenses. Each party shall bear the expenses incurred by it in
--------
connection with the negotiation, execution and delivery of this Agreement and
the other agreements and instruments contemplated hereby and the consummation of
the transactions contemplated hereby and thereby.
3.16. Severable Provisions. The provisions of this Agreement are
--------------------
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable.
3.17. Taxes. The Shareholders shall pay timely any transfer, sales or
-----
other taxes which may become due or payable by virtue of the transactions
contemplated by this Agreement.
3.18. Obligation of the Parent. The Parent shall cause the Purchasers to
------------------------
timely perform their obligations under this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
Purchasers: TAG MEX, INC.
By /s/ Gerard Guez
----------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Telecopier: (323) 881-0368
NO! JEANS, INC.
By /s/ Gerard Guez
----------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California 90023
Telecopier: (323) 881-0368
Shareholders: /s/ Antonio Haddad Haddad
----------------------------------------
ANTONIO HADDAD HADDAD
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
/s/ Miguel Angel Haddad Yunes
----------------------------------------
MIGUEL ANGEL HADDAD YUNES
Calle Reforma Norte No. 131
Colonia Centro, C.P. 75770
Tehuacan, Puebla
/s/ Mario Alberto Haddad Yunes
----------------------------------------
MARIO ALBERTO HADDAD YUNES
Calle Guillermo Prieto No. 200
Fraccionamiento Reforma, C.P. 75770
Tehuacan, Puebla
/s/ Marco Antonio Haddad Yunes
----------------------------------------
MARCO ANTONIO HADDAD YUNES
Calle Miguel de Cervantes Saavedra
No. 170
Fraccionamiento El Mollino, C.P. 75699
Tehuacan, Puebla
8
<PAGE>
Parent: TARRANT APPAREL GROUP
By /s/ Gerard Guez
----------------------------------------
Authorized Representative
3151 East Washington Boulevard
Los Angeles, California
Telecopier: (323) 881-0368
9
<PAGE>
SCHEDULE 2.1 (b)
Allocation of Noncompete Payment
Shareholder Payment
----------- -------
Antonio Haddad Haddad U.S.$8,000,000
10
<PAGE>
EXHIBIT 10.77
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of ________________, 1999 ("Agreement"), by
and between General Electric Capital Corporation, a New York corporation with an
address at 44 Old Ridgebury Road, Danbury, CT 06810 ("Lender"), and Tarrant
Apparel Group, a corporation organized and existing under the laws of the state
of California with its chief executive offices located at 3151 East Washington
Boulevard, Los Angles, California 90023 ("Borrower").
In consideration of the promises herein contained and of certain other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. THE LOAN.
(a) Subject to the terms and conditions of this Agreement and relying upon
the representations and warranties herein set forth, Lender agrees to make a
loan (the "Loan") to the Borrower on the date hereof in the principal amount of
$12,500,000.00. The proceeds of the Loan will be used by Borrower for the
purpose of refinancing Borrower's financing of certain equipment and other
property located at Guarantor's denim facility in Puebla, Mexico and general
working purposes.
(b) The obligation of Borrower to pay the Loan with interest shall be
evidenced by a Promissory Note (as extended, replaced, amended, restated, or
otherwise modified from time to time, the "Note") dated the date hereof in the
principal amount of the Loan and executed and delivered by Borrower to Lender
simultaneously with the advance of the Loan.
(c) The payment of the Indebtedness (as hereinafter defined) and the
performance of this Agreement, the Note and the other Debt Documents (as
hereinafter defined) are guaranteed by Tarrant Mexico, S de R.L. de C.V. (the
"Guarantor") pursuant to a Corporate Guaranty (as extended, amended, restated,
supplemented or otherwise modified from time to time, the "Guaranty") dated the
date hereof from Guarantor to Lender. The payment and performance of any and all
debts, obligations and liabilities of any kind, nature or description whatsoever
(whether primary, secondary, direct, contingent, sole, joint or several, or
otherwise, and whether due or to become due) of Borrower to Lender, now existing
or hereafter arising under this Agreement, the Debt Documents and the Note, and
any renewals, extensions and modifications of such debts, obligations and
liabilities (all of the foregoing being hereinafter referred to as the
"Indebtedness") are secured by that certain Master Security Agreement dated the
date hereof (the "Security Agreement") between Guarantor and Lender and any
Collateral Schedule now or hereafter executed pursuant thereto (each a
"Collateral Schedule") and the Collateral (as defined therein).
(d) The parties hereto expressly acknowledge that Lender, Guarantor and GE
Capital Bank, S.A., Division Fiduciaria, Institucion de Banca Multiple, Grupo
Financiero GE Capital (a Mexican Banking Institution duly authorized to act as
such - the "Trustee"), are parties to that certain Administration Trust
Agreement number _______ dated ________________, 1999 (the "Trust"), wherein
Lender has placed the Collateral to further secure Borrower's obligations to
Secured Party under this Agreement and Guarantor's obligations to Lender under
the Guaranty. In connection with the foregoing and without prejudice to Lender's
rights hereunder and under the Trust, Lender hereby agrees not to give any
instructions to the Trustee to relocate or assert control over the Collateral
unless an Event of Default (as this term is defined in Section 7 below) occurs
hereunder and Guarantor receives the notice required pursuant to the terms of
the Trust. Lender and Borrower further agree that, in the event of an
inconsistency between the terms and conditions of this Agreement or the Security
Agreement and the terms and conditions of the Trust, the terms of this Agreement
or the Security Agreement, whichever is applicable, shall govern the resolution
of any dispute relating to the Collateral.
(e) Lender shall not be required to make the Loan unless the following
conditions precedent have been satisfied in a manner acceptable to Lender: (i)
Lender shall have received (A) certified resolutions of Borrower's and
Guarantor's board of directors authorizing the execution and delivery of this
1
<PAGE>
Agreement and the other Debt Documents to which it is a party, (B) a certificate
of incumbency of Borrower's and Guarantor's secretary or assistant secretary as
to the officers authorized to sign this Agreement and the other Debt Documents
to which it is a party, (C) this Agreement, the Note, the Guaranty, the Security
Agreement, the Trust and each of the other Debt Documents required by Lender to
be executed and delivered prior to the making of the Loan, and (D) any
additional documents, agreements, certifications, record searches, insurance
policies or opinions which Lender may deem necessary or desirable in form and
content acceptable to Lender, and (ii) all representations and warranties made
in or in connection with this Agreement and the other Debt Documents shall be
true, correct and complete as of the date hereof and no event which, after
execution of the Debt Documents would constitute an Event of Default hereunder,
shall have occurred and be continuing.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
Borrower hereby represents, warrants and covenants as of the date hereof
and as of the date the Loan is made hereunder that:
(a) Borrower is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
(b) Borrower has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, the Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt Documents");
(c) This Agreement and the other Debt Documents have been duly authorized,
executed and delivered by Borrower and constitute legal, valid and binding
agreements enforceable under all applicable laws in accordance with their terms,
except to the extent that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into, or
performance by, Borrower of any of the Debt Documents, except such as may have
already been obtained;
(e) The entry into, and performance by, Borrower of the Debt Documents will
not (i) violate any of the organizational documents of Borrower or any judgment,
order, law or regulation applicable to Borrower, or (ii) result in any breach
of, constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Borrower's property (except for liens in favor of Lender)
pursuant to, any indenture mortgage, deed of trust, bank loan, credit agreement,
or other agreement or instrument to which Borrower is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Borrower which if adversely decided against Borrower would, in the aggregate,
have a material adverse effect on Borrower, its business or operations, or its
ability to perform its obligations under the Debt Documents;
(g) All financial statements delivered to Lender in connection with the
Indebtedness have been prepared in accordance with generally accepted accounting
principles, and since the date of the most recent financial statement, there has
been no material adverse change;
(h) The Collateral is not, and will not be, used by Borrower or Guarantor
for personal, family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and
neither Borrower nor Guarantor will be negligent in the care and use thereof;
2
<PAGE>
(j) Borrower and/or Guarantor is, and will remain, the sole and lawful
owner, and in possession of, the Collateral security;
(k) The Collateral is, and will remain, free and clear of all liens, claims
and encumbrances of every kind, nature and description, except for (i) liens in
favor of Lender, (ii) liens for taxes not yet due or for taxes being contested
in good faith and which do not involve, in the reasonable judgment of Lender,
any risk of the sale, forfeiture or loss of any of the Collateral, and (iii)
inchoate materialmen's, mechanic's, repairmen's and similar liens arising by
operation of law in the normal course of business for amounts which are not
delinquent (all of such permitted liens being hereinafter referred to as
"Permitted Liens");
(l) Borrower has good and marketable title to its assets as disclosed on
any balance sheets supplied to Lender pursuant to this Agreement. Such property
and assets are subject to no lien or encumbrance of any kind, except for liens
arising pursuant to or expressly permitted by this Agreement; and
(m) The real estate where the Collateral is and shall be located throughout
the term hereof is located at the location set forth on the applicable
Collateral Schedule, and such real estate is free and clear of any lien or
encumbrance of any kind whatsoever and such is evidenced by a certificate of no
lien (Certificado de Libertad de Gravamenes) issued by the Public Registry of
the State in which the real estate is located, a copy of which shall be
delivered by Borrower to Lender.
3. COLLATERAL.
(a) Until the declaration of an Event of Default hereunder and at all times
subject to the terms of the Trust, Borrower and/or Guarantor shall remain in
possession of the Collateral; provided, however, that Lender shall have the
right to possess (i) any chattel paper or instrument that constitutes a part of
the Collateral, and (ii) any other Collateral which because of its nature may
require that Lender's security interest therein be perfected by possession.
Lender, its successors and assigns, and their respective agents, shall have the
right to examine and inspect any of the Collateral at any time during normal
business hours upon reasonable notice.
(b) Borrower shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good condition and working order, (iii)
use and maintain the Collateral only in compliance with all applicable laws, and
(iv) keep all of the Collateral free and clear of all liens, claims and
encumbrances (except for Permitted Liens).
(c) Subject to the terms of the Trust, Borrower shall not, nor permit
Guarantor to, without the prior written consent of Lender, (i) part with
possession of any of the Collateral (except to Lender or for maintenance and
repair), (ii) remove any of the Collateral from its original location, or (iii)
sell, rent, lease, mortgage, grant a security interest in or otherwise transfer
or encumber (except for Permitted Liens) any of the Collateral.
(d) Borrower shall pay or cause Guarantor to pay promptly when due all
taxes, license fees, assessments and public and private charges levied or
assessed on any of the Collateral, on the use thereof, or on this Agreement or
any of the other Debt Documents. Lender may discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on the Collateral
and may pay for the maintenance, insurance and preservation of the Collateral or
to effect compliance with the terms of this Agreement or any of the other Debt
Documents solely in the event Borrower fails to do so in accordance with the
terms hereof. Borrower shall reimburse Lender, on demand, for any and all costs
and expenses incurred by Lender in connection therewith and agrees that such
reimbursement obligation shall be secured hereby.
(e) Borrower shall, at all times, keep accurate and complete records of the
Collateral, and Lender, its successors and assigns, and their respective agents,
shall have the right to examine, inspect, and
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<PAGE>
make extracts from all of Borrower's books and records relating to the
Collateral at any time during normal business hours upon reasonable notice.
(f) Any third person at any time and from time to time holding all or any
portion of the Collateral shall be deemed to, and shall, hold the Collateral as
the agent of, and as pledge holder for, Lender. At any time and from time to
time, Lender may give notice to any third person holding all or any portion of
the Collateral that such third person is holding the Collateral as the agent of,
and as pledge holder for, the Lender.
(g) Neither Borrower nor Guarantor shall, without the prior written consent
of Lender, rent, lease, mortgage, grant a security interest in or otherwise
transfer or encumber the real estate where the Collateral is and shall be
located throughout the term hereof. Lender's consent as aforesaid, shall be
conditioned upon, among other things, Borrower and/or Guarantor securing from
the lessee, mortgagee, creditor, landlord or otherwise, and delivering to Lender
a waiver and subordination, in form and substance satisfactory to Lender, from
said person, expressly acknowledging Lender's rights and interests in and to the
Collateral. Notwithstanding the foregoing, and among other conditions at
Lender's sole discretion, such waiver and subordination shall expressly and
irrevocably afford Lender, at no cost to Lender, the right to maintain the
Collateral at said location, for at least 180 days following the date any such
mortgagee, creditor, landlord or other interested party exercises its respective
rights under the relevant mortgage, lease or security document.
4. INSURANCE.
The Collateral shall at all times be held at Borrower's and Guarantor's
risk, and Borrower shall keep it insured against loss or damage by fire and
extended coverage perils, theft, burglary, and for any or all Collateral which
are vehicles, for risk of loss by collision, and where requested by Lender,
against other risks as required thereby, for the full replacement value thereof,
with companies, in amounts and under policies acceptable to Lender. Borrower
shall, if Lender so requires, deliver to Lender policies or certificates of
insurance evidencing such coverage. Each policy shall name Lender as loss payee
thereunder, shall provide for coverage to Lender regardless of the breach by
Borrower or Guarantor of any warranty or representation made therein, shall not
be subject to co-insurance, and shall provide for thirty (30) days written
notice to Lender of the cancellation or material modification thereof. Borrower
hereby appoints Lender as its attorney in fact to make proof of loss, claim for
insurance and adjustments with insurers, and to execute or endorse all
documents, checks or drafts in connection with payments made as a result of any
such insurance policies. Proceeds of insurance shall be applied, at the option
of Lender, to repair or replace the Collateral or to reduce any of the
Indebtedness secured hereby.
5. REPORTS.
(a) Borrower shall promptly notify Lender in the event of (i) any change in
the name of Borrower or Guarantor, (ii) any relocation of Borrower's or
Guarantor's chief executive offices, (iii) any relocation of any of the
Collateral, (iv) any of the Collateral being lost, stolen, missing, destroyed,
materially damaged or worn out, or (v) any lien, claim or encumbrance attaching
or being made against any of the Collateral other than Permitted Liens.
(b) Borrower will deliver to Lender Borrower's complete financial
statements, certified by a recognized firm of certified public accountants,
within ninety (90) days of the close of each fiscal year of Borrower. Borrower
will also deliver to Lender copies of Borrower's quarterly financial reports
certified by Borrower's chief financial officer, within ninety (90) days after
the close of each of Borrower's fiscal quarter. Borrower will deliver to Lender
copies of all Forms 10-K and 10-Q, if any, within 30 days after the dates on
which they are filed with the Securities and Exchange Commission. Any and all
financial statements submitted and to be submitted to Lender have and will have
been prepared on a basis of generally accepted accounting principles, and are
and will be complete and correct and fairly present Borrower's financial
condition as at the date thereof. Lender may at any reasonable time examine the
books and records of Borrower and make copies thereof upon reasonable notice.
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6. FURTHER ASSURANCES.
(a) Borrower shall, and shall cause Guarantor to, upon request of Lender,
furnish to Lender such further information, execute and deliver to Lender such
documents and instruments (including, without limitation, Uniform Commercial
Code financing statements and any other public filings) and do such other acts
and things, as Lender may at any time reasonably request relating to the
perfection or protection of the security interest created by this Agreement or
for the purpose of carrying out the intent of this Agreement. Without limiting
the foregoing, Borrower shall cooperate and do all acts deemed necessary or
advisable by Lender to continue in Lender a perfected first security interest in
the Collateral, and shall obtain and furnish to Lender any subordinations,
releases, landlord, lessor, or mortgagee waivers, and similar documents as may
be from time to time requested by, and which are in form and substance
satisfactory to, Lender.
(b) Borrower shall indemnify and defend the Lender, its successors and
assigns, and their respective directors, officers and employees, from and
against any and all claims, actions and suits (including, without limitation,
related attorneys' fees) of any kind, nature or description whatsoever arising,
directly or indirectly, in connection with any of the Collateral except claims
arising as a result of the gross negligence or intentional misconduct of Lender
or Trustee.
7. EVENTS OF DEFAULT.
Borrower shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Borrower fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Borrower, without the prior written consent of Lender, attempts to or
does sell, rent, lease, mortgage, grant a security interest in, or otherwise
transfer or encumber (except for Permitted Liens) any of the Collateral;
(c) Borrower fails to procure, or maintain in effect at all times, any of
the insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Borrower breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Borrower in any of
the Debt Documents or otherwise in connection with any of the Indebtedness shall
be false or misleading in any material respect when made;
(f) Any of the Collateral being subjected to attachment, execution, levy,
seizure or confiscation in any legal proceeding;
(g) Any default by Borrower under any other agreement between Borrower and
Lender;
(h) Any dissolution, termination of existence, insolvency or business
failure of Borrower or Guarantor;
(i) The appointment of a receiver for all or of any part of the property of
Borrower or Guarantor, or any assignment for the benefit of creditors by
Borrower or Guarantor;
(j) The filing of a petition by Borrower or Guarantor under any bankruptcy,
insolvency or similar law, or the filing of any such petition against Borrower
or Guarantor if the same is not dismissed within sixty (60) days of such filing;
5
<PAGE>
(k) Borrower defaults under any other material obligation for (i) borrowed
money, (ii) the deferred purchase price of property or (iii) payments due under
any lease agreement;
(l) Borrower or any Guarantor shall have consolidated with, merged into or
conveyed or leased substantially all of its assets as an entirety to any person
(such actions being referred to as an "Event"), unless not less than sixty (60)
days prior to such Event: (x) such person is organized and existing under the
laws of the United States or any state, and executes and delivers to Lender an
agreement containing an effective assumption by such person of the due and
punctual performance of this Agreement or guaranty thereof, as the case may be,
and (y) Lender is reasonably satisfied as to the credit worthiness of such
person;
(m) As a result of or in connection with a material change in the ownership
of Borrower's capital stock, Borrower's debt-to-worth ratio equals or exceeds
twice Borrower's debt-to-worth ratio as of the date of this Agreement (unless
Lender shall have given its prior written consent thereto) (as used herein,
"debt-to-worth ratio" shall mean the ratio of (x) total liabilities which, in
accordance with generally accepted accounting principles ("GAAP") would be
included in the liability side of a balance sheet, to (y) tangible net worth
including the sum of the par or stated value of all outstanding capital stock,
surplus and undivided profits, less any amounts attributable to goodwill,
patents, copyrights, mailing lists, catalogs, trademarks, bond discount and
underwriting expenses, organization expense and other intangibles, all
determined in accordance with GAAP); or
(n) An Event of Default occurs under the Security Agreement.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Lender, at its option, may declare any or all of the Indebtedness, including
without limitation the Note, to be immediately due and payable, without demand
or notice to Borrower or Guarantor. The obligations and liabilities accelerated
thereby shall bear interest (both before and after any judgment) until paid in
full at the lower of the Prime Rate (as hereinafter defined) plus three percent
(3%) per annum or the maximum rate not prohibited by applicable law. As used
herein, "Prime Rate" shall mean the floating and fluctuating per annum rate of
interest of Citibank, N.A. (the "Bank") at any time or from time to time
established and declared by the Bank in its sole and absolute discretion as its
prime rate. The Prime Rate does not necessarily represent the lowest rate of
interest charged by the Bank to borrowers.
(b) Upon such declaration of default, Lender shall have all of the rights
and remedies of a Lender under the Uniform Commercial Code, and under any other
applicable law. Without limiting the foregoing, Lender shall have the right to
(i) notify any account Borrower of Borrower or any obligor on any instrument
which constitutes part of the Collateral to make payment to the Lender, (ii)
with or without legal process, enter any premises where the Collateral may be
and take possession and/or remove said Collateral from said premises, (iii) sell
the Collateral at public or private sale, in whole or in part, and have the
right to bid and purchase at said sale, (iv) lease or otherwise dispose of all
or part of the Collateral, applying proceeds therefrom to the obligations then
in default; and/or (v) maintain the Collateral at the premises at which the
Collateral is located, and use such premises for any of the purposes stated
herein, for 180 days after Lender takes possession of the Collateral free of any
rent or cost to Lender. If requested by Lender, Borrower shall or shall cause
Guarantor to, promptly assemble the Collateral and make it available to Lender
at a place to be designated by Lender which is reasonably convenient to both
parties. Lender may also render any or all of the Collateral unusable at the
Borrower's or Guarantor's premises and may dispose of such Collateral on such
premises without liability for rent or costs. Any notice which Lender is
required to give to Borrower or Guarantor under the Uniform Commercial Code or
the laws of the jurisdiction in which the Collateral is located of the time and
place of any public sale or the time after which any private sale or other
intended disposition of the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Borrower or Guarantor, whichever is applicable, at least five (5) days prior
to such action.
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(c) Proceeds from any sale or lease or other disposition shall be applied:
first, to all costs of repossession, storage, and disposition including without
limitation reasonable attorneys', appraisers', and auctioneers' fees; second, to
discharge the obligations then in default; third, to discharge any other
indebtedness then due and owing (whether by acceleration or otherwise) of
Borrower and/or Guarantor to Lender, whether as obligor, endorsor/endorser,
guarantor, surety or indemnitor; fourth, to expenses incurred in paying or
settling liens and claims against the Collateral; and lastly, to Borrower, if
there exists any surplus. Borrower shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Borrower agrees to pay all
reasonable attorneys' fees incurred by Lender, and further agrees that payment
of such fees is secured hereunder.
(e) Lender's rights and remedies hereunder or otherwise arising are
cumulative and may be exercised singularly or concurrently. Neither the failure
nor any delay on the part of the Lender to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. Lender
shall not be deemed to have waived any of its rights hereunder or under any
other agreement, instrument or paper signed by Borrower unless such waiver be in
writing and signed by Lender. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
(f) BORROWER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN BORROWER AND LENDER RELATING
TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR
THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN BORROWER AND LENDER. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT
DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION
OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement, the Note and/or any of the other Debt Documents may be
assigned, in whole or in part, by Lender without notice to Borrower, and
Borrower hereby waives and agrees not to assert against any such assignee, or
assignee's assigns, any defense, set-off, recoupment claim or counterclaim which
Borrower has or may at any time have against Lender for any reason whatsoever.
Borrower agrees that if Borrower receives written notice of an assignment from
Lender, Borrower will pay all amounts payable under any assigned Debt Documents
to such assignee or as instructed by Lender. Borrower also agrees to confirm in
writing receipt of the notice of assignment as may be reasonably requested by
assignee.
(b) All notices to be given in connection with this Agreement shall be in
writing, shall be addressed to the parties at their respective addresses set
forth hereinabove (unless and until a different address may be specified in a
written notice to the other party), and shall be deemed given (i) on the date of
receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) on the fourth business
day after being sent by regular, registered or certified mail. As used herein,
the term "business day" shall mean and include any day other than Saturdays,
Sundays, or
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<PAGE>
other days on which commercial banks in Los Angeles, California or New York, New
York are required or authorized to be closed.
(c) Time is of the essence hereof. This Agreement shall be binding, jointly
and severally, upon all parties described as the "Borrower" and their respective
heirs, executors, representatives, successors and assigns, and shall inure to
the benefit of Lender, its successors and assigns.
(d) This Agreement and the Debt Documents constitute the entire agreement
between the parties with respect to the subject matter hereof and supercede all
prior understandings (whether written, verbal or implied) with respect thereto.
This Agreement shall not be changed or terminated orally or by course of
conduct, but only by a writing signed by both parties hereto. Section headings
contained in this Agreement have been included for convenience only, and shall
not affect the construction or interpretation hereof.
(e) This Agreement shall continue in full force and effect until all of the
Indebtedness has been indefeasibly paid in full to Lender. The surrender, upon
payment or otherwise, of the Note or any of the other documents evidencing any
of the Indebtedness shall not affect the right of Lender to retain the
Collateral for such other Indebtedness as may then exist or as it may be
reasonably contemplated will exist in the future. This Agreement shall
automatically be reinstated in the event that Lender is ever required to return
or restore the payment of all or any portion of the Indebtedness (all as though
such payment had never been made).
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
(g) Borrower acknowledges that it has been advised that General Electric
Capital Corporation may act hereunder for itself and as agent for certain third
parties (each being herein referred to as a "Participant"); and that the
interest of the Lender in this Agreement, the Collateral Schedules, the Notes,
related instruments and documents and/or the Collateral may be conveyed to, in
whole or in part, and may be used as security for financing obtained from, one
or more third parties without the consent of Borrower (the "Syndication").
Borrower agrees reasonably to cooperate with Lender in connection with the
Syndication, including the execution and delivery of such other documents,
instruments, notices, certificates and acknowledgements as reasonably may be
required by Lender or such Participant; provided, however, in no event shall
Borrower be required to consent to any change that would adversely affect any of
the economic terms of the transactions contemplated herein.
10. FINANCIAL COVENANTS.
Borrower hereby agrees that it shall:
(a) Maintain at all times a Tangible Net Worth of not less than US
$30,000,000,
(b) Maintain a Debt to Equity Ratio of not more than 2.0 to 1, measured at
each audited financial year end, and
(c) Not have net losses in any two (2) consecutive fiscal quarters.
For the purposes hereof, the following terms shall have the meanings
ascribed to them:
"Debt to Equity Ratio" shall mean, for any fiscal period, Borrower's
--------------------
total liabilities (current and long term) divided by Borrower's Tangible
Net Worth, and
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<PAGE>
"Tangible Net Worth" shall mean, as of any applicable date of
------------------
determination, the aggregate of the paid up capital, reserves, and retained
profits or losses after deducting all amounts attributable to goodwill,
licenses and all other assets which would be treated as intangibles under
GAAP in Hong Kong or the United States.
IN WITNESS WHEREOF, Borrower and Lender, intending to be legally bound hereby,
have duly executed this Agreement in one or more counterparts, each of which
shall be deemed to be an original, as of the day and year first aforesaid.
LENDER:
General Electric Capital Corporation
By:____________________________________
Title:_________________________________
BORROWER:
Tarrant Apparel Group
By: /s/ Corazon R. Reyes
------------------------------------
Title:_________________________________
9
<PAGE>
EXHIBIT 10.77.1
AMENDMENT NO. 1 TO LOAN AGREEMENT
THIS AMENDMENT NO. 1 TO LOAN AGREEMENT is made as of the __day of
_________, 1999, by and between GENERAL ELECTRIC CAPITAL CORPORATION ("Lender")
and TARRANT APPAREL GROUP ("Borrower").
The parties have heretofore entered into that certain Loan Agreement dated
as of ___, 1999 (the "Agreement"), and desire to amend the Agreement as
hereinafter set forth. Capitalized terms used herein without definition shall
have the meaning given them in the Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Agreement is hereby amended as follows:
(a) Section 1 (d) of the Agreement is hereby amended by deleting the
reference to "Administration Trust Agreement number F/172 dated
August 26, 1999" therein and inserting the following in lieu
thereof:
"Irrevocable Guaranty Trust Agreement number F/172 dated August
26, 1999".
(b) Section 1 (d) of the Agreement is further amended by deleting the
last clause of the last sentence thereof and replacing it with the
following:
"shall govern the resolution of any dispute, other than one
arising under the Mexican or Spanish language loan documentation".
(c) Section 2(j) of the Agreement is hereby amended by deleting the
words "Borrower and/or" at the beginning thereof.
(d) Section 8(b) of the Agreement is hereby amended by deleting the
first reference to "Borrower" in the third (3rd) line thereof and
inserting the word "debtor" in lieu thereof.
2. Except as expressly set forth herein, the terms and conditions of the
Agreement remain unmodified and in full force and effect.
3. THIS AMENDMENT NO. 1 TO LOAN AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH
STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to Loan
Agreement to be executed as of the date first above set forth.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Joseph P. Cunningham
------------------------
Name: Joseph P. Cunningham
------------------------
Title: Sr. Risk Analyst
----------------
TARRANT APPAREL GROUP
By: /s/ Patrick Chow
----------------
Name: Patrick Chow
------------------------
Title: Treasurer
------------------------
<PAGE>
Exhibit 10.78
PROMISSORY NOTE
___________________, 1999
(Date)
3151 East Washington Boulevard, Los Angeles, CA 90023
- --------------------------------------------------------------------------------
(Address of Maker)
FOR VALUE RECEIVED, Tarrant Apparel Group ("Maker") promises, jointly and
severally, if more than one, to pay to the order of General Electric Capital
Corporation or any subsequent holder hereof (each, a "Payee") at its office
located at 4 North Park Drive, Suite 500, Hunt Valley, MD 21030 or at such other
place as Payee or the holder hereof may designate, the principal sum of Twelve
Million Five Hundred Thousand Dollars and 00/100 ($12,500,000.00), with interest
thereon, from the date hereof through and including the dates of payment, at the
floating per annum simple interest rate ("Contract Rate") calculated as
hereinafter set forth. The Contract Rate shall be adjusted once each calendar
month, and such adjustment shall be effective during the adjustment period
("Adjustment Period") as hereinafter defined. Each Adjustment Period shall
commence at the close of business on the ____________________ day of a calendar
month and shall continue through the same day of the next succeeding calendar
month. The Contract Rate for each Adjustment Period shall be equal to the sum of
(i) two and one-half percent (2.5% per annum plus (ii) a variable per annum
interest rate, which shall be the Libor Rate. "Libor Rate" shall mean, with
respect to any adjustment period occurring during the term of this Promissory
Note, an interest rate per annum equal to the average of the interbank offered
rates for dollar deposits in the London market based on quotations at five major
banks for thirty (30) day maturities, to the extent the rates offered by these
banks is published in the "Money Rates" column of the Eastern Edition of The
Wall Street Journal (provided, however, that with respect to the first
Adjustment Period, it shall be determined as of the seventh Business Day next
preceding the first day of such first Adjustment Period).
Subject to the other provisions hereof, the principal on this Note is payable in
lawful money of the United States in seventy-two (72) consecutive monthly
installments of One Hundred Seventy Three Thousand Six Hundred Eleven and 12/100
Dollars ($173,611.12) each plus interest at the Contract Rate ("Periodic
Installment") and a final installment which shall be in the amount of the total
outstanding unpaid principal and interest. The first Periodic Installment shall
be due and payable on ____________________ and the following Periodic
Installments and the final installment shall be due and payable on the same day
of each succeeding period (each, a "Payment Date"). The number of Periodic
Installments, and their due dates, will not change with fluctuations in the
Contract Rate.
All payments shall be applied first to interest and then to principal. Each
payment may, at the option of the Payee, be calculated and applied on an
assumption that such payment would be made on its due date. The acceptance by
Payee of any payment which is less than payment in full of all amounts due and
owing at such time shall not constitute a waiver of Payee's right to receive
payment in full at such time or at any prior or subsequent time. Interest shall
be calculated on the basis of a 360 day year.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which being hereinafter called a "Security
Agreement").
Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
the applicable due date, the Maker agrees to pay, in addition to the amount of
each such installment or other sum, a late payment charge of five percent (5%)
of said installment or other sum, but not exceeding any lawful maximum. If (i)
Maker fails to make payment of any amount due hereunder within ten (10) days
after the same becomes due and payable; or (ii) Maker is in default under or
fails to perform under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
accrued interest thereon and any other sum payable under this Note or the
Security Agreement, at the election of Payee, shall immediately become due and
payable, with interest thereon at the lesser of the Prime Rate (as hereinafter
defined) plus three percent (3%) per annum or the highest rate not prohibited by
applicable law from the date of such accelerated maturity until paid (both
before and after any judgment). As used herein, "Prime Rate" shall mean the
floating and fluctuating per annum rate of interest of Citibank, N.A. (the
"Bank") at any time or from time to time established and declared by the Bank in
its sole and absolute discretion as its prime rate. The Prime Rate does not
necessarily represent the lowest rate of interest charged by the Bank to
borrowers.
The Maker may prepay in full, but not in part, its entire indebtedness hereunder
upon payment of an additional sum as a premium equal to the following
percentages of the original principal balance for the indicated period:
Prior to the first annual anniversary date of
this Note: two and one-half percent (2.5%)
Thereafter and prior to the second annual
anniversary date of this Note: two percent (2%)
Thereafter and prior to the third annual
anniversary date of this Note: one and one-half percent (1.5%)
and zero percent (0%) thereafter, plus all other sums due hereunder or
under any Security Agreement.
It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the
<PAGE>
maximum amount permitted by applicable law or permitted by virtue of any license
held by payee. If any such excess interest is contracted for, charged or
received under this Note or any Security Agreement, or in the event that all of
the principal balance shall be prepaid, so that under any of such circumstances
the amount of interest contracted for, charged or received under this Note or
the Security Agreement on the principal balance shall exceed the maximum amount
of interest permitted by applicable law or permitted by virtue of any license
held by payee, then in such event (a) the provisions of this paragraph shall
govern and control, (b) neither Maker nor any other person or entity now or
hereafter liable for the payment hereof shall be obligated to pay the amount of
such interest to the extent that it is in excess of the maximum amount of
interest permitted by applicable law, (c) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
balance or refunded to Maker, at the option of the Payee, and (d) the effective
rate of interest shall be automatically reduced to the maximum lawful contract
rate allowed under applicable law as now or hereafter construed by the courts
having jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Note or the Security Agreement which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to receive a
greater interest per annum rate than is presently allowed, the Maker agrees
that, on the effective date of such amendment or preemption, as the case may be,
the lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States of
America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made, granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waive
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agree to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual reasonable
attorneys' fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supersedes all
prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.
Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.
Tarrant Apparel Group
/s/ Patrick Chow /s/ Corazon Reyes
- ------------------------- ---------------------------(L.S.)
(Witness) (Signature)
Patrick Chow Corazon Reyes
- ------------------------- --------------------------------------
(Print name) Print name (and title, if applicable)
95-4181026
_________________________ --------------------------------------
(Address) (Federal tax identification number)
<PAGE>
Exhibit 10.79
CORPORATE GUARANTY
Date:___________, 1999.
General Electric Capital Corporation
44 Old Ridgebury Road
Danbury, Connecticut 06810
Gentlemen:
To induce you to enter into the Loan Agreement dated__________ ___, 1999,
and any and all Schedules and Annexes thereto, with TARRANT APPAREL GROUP
("Customer"), and to make the loan in the original principal amount of US
$12,500,000.00 to the Customer the repayment of which is evidenced by the
Promissory Note dated ________ ___, 1999, in the original principal amount of
$12,500,000.00 from the Customer to you (collectively "Documents" and each a
"Document"), in terms of Articles 2794, 2795, 2798, 2800 and other applicable
Articles of the Civil Code for the Federal District (the "Civil Code") and the
corresponding provisions of the Civil Codes for the various States of the
Republic of Mexico (collectively the "Codes"), the undersigned, for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby guarantee to you, your successors and assigns, and
constitutes itself as solidary obligee for the due regular and punctual payment
of any sum or sums of money which the Customer may owe to you now or at any time
hereafter, evidenced by the Documents or any of them, and whether it represents
principal, interest, penalty interest for late payment, indemnities, or original
balance or accelerated balance, a balance reduced by partial payment, any
deficiency on amounts paid by the Customer, or any other type of sums of any
kind whatsoever that the Customer may owe to you under the Documents, your
successors and assigns, the due, regular and punctual performance of any other
duty or obligation of any kind or character whatsoever that the Customer may owe
to you now or at any time hereafter (all such payments and performance
obligations being collectively referred to as "Obligations"). The undersigned
does hereby further guarantee to pay upon demand all losses, costs, attorney's
fees and expenses which may be suffered by you by reason of Customer's default
or default of the undersigned.
For the purposes of this Guaranty, the undersigned hereby represents and
warrants to you that:
a) The undersigned is a commercial company duly organized, incorporated
and authorized in the Republic of Mexico, as evidenced in public deed
number 3,303 dated April 16th 1998, granted before Notary Public
number 111 for the City of Monterrey, State of Nuevo Leon, Mr. Jose
Javier Leal Gonzalez, and registered with the Public Registry of
Commerce of the State of Puebla under Commercial File number 181,
"fojas" 14, book 1, "Tomo" 7, dated June 19th 1998.
b) That its representative herein, Ms. Corazon Reyes, has sufficient
faculties therefor, which faculties have not been revoked nor limited
in any manner whatsoever, as evidenced in public deed number 7,899
dated April 30th 99 granted before Notary Public 5 for the City of
Tehuacan, State of Puebla, Mr. Miguel Angel Ortiz Anaya, and
registered with the Public Registry of Commerce of the State of Puebla
under Commercial File number 154, book 1, "Tomo" 7, dated May 6th
1999.
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c) That its corporate by-laws expressly allow it to guaranty third
party's obligations without limitation.
d) That the granting of this Guaranty will result in a direct or indirect
economic benefit to it.
This Guaranty is a guaranty of prompt payment and performance (and not
merely a guaranty of collection). Nothing herein shall require you to first seek
or exhaust any remedy against the Customer, its successors and assigns, or any
other person obligated with respect to the Obligations, or to first foreclose,
exhaust or otherwise proceed against any leased equipment, collateral or
security which may be given in connection with the Obligations. It is agreed
that you may, upon any Event of Default of the Customer, or at any time
thereafter, make demand upon the undersigned and receive payment and performance
of the Obligations, its successors or assigns, or any other person. Suit may be
brought and maintained against the undersigned, at your election, without
joinder of the Customer or any other person as parties thereto. The obligations
of each signatory to this Guaranty shall be joint and several.
For the purposes of the preceding paragraph, the undersigned hereby
expressly waives to the rights contained under Articles 2814, 2815, and 2823 of
the Civil Code and the corresponding provisions of the Codes.
The undersigned agrees that its obligations under this Guaranty shall be
primary, absolute, continuing and unconditional, irrespective of and unaffected
by any of the following actions or circumstances (regardless of any notice to or
consent of the undersigned): (a) the genuineness, validity, regularity and
enforceability of the Documents or any other documents; (b) any extension,
renewal, amendment, change, waiver or other modification of the Documents or any
other document; (c) the absence of, or delay in, any action to enforce the
Documents, this Guaranty or any other document; (d) your failure or delay in
obtaining any other guaranty of the Obligations (including, without limitation,
your failure to obtain the signature of any other guarantor hereunder); (e) the
release of, extension of time for payment or performance by, or any other
indulgence granted to the Customer or any other person with respect to the
Obligations by operation of law or otherwise; (f) the existence, value,
condition, loss, subordination or release (with or without substitution) of, or
failure to have title to or perfect and maintain a security interest in, or the
time, place and manner of any sale or other disposition of any leased equipment,
collateral or security given in connection with the Obligations, or any other
impairment (whether intentional or negligent, by operation of law or otherwise)
of the rights of the undersigned; (g) the Customer's voluntary or involuntary
bankruptcy, assignment for the benefit of creditors, reorganization, or similar
proceedings affecting the Customer or any of its assets; or (h) any other action
or circumstances which might otherwise constitute a legal or equitable discharge
or defense of a surety or guarantor. Therefore, the undersigned hereby expressly
waives to the rights contained under Articles 2826, 2846 and 2847 of the Civil
Code and the corresponding provisions of the Codes.
The undersigned agrees that this Guaranty shall remain in full force and
effect or be reinstated (as the case may be) if at any time payment or
performance of any of the Obligations (or any part thereof) is rescinded,
reduced or otherwise be restored or returned by you, all as though such payment
or performance had not been made. If, by reason of any bankruptcy, insolvency or
similar laws affecting the rights of creditors, you shall be prohibited from
exercising any of your rights or remedies against the Customer or any other
person or against any property, then, as between you and the undersigned, such
prohibition shall be of no force and effect, and you shall have the right to
make
2
<PAGE>
demand upon, and receive payment from, the undersigned of all amounts and other
sums that would be due to you upon a default with respect to the Obligations.
Notice of acceptance of this Guaranty and of any default by the Customer or
any other person is hereby waived. Presentment, protest, demand, and notice of
protest, demand and dishonor of any of the Obligations, and the exercise of
possessory, collection or other remedies for the Obligations, are hereby waived.
The undersigned hereby expressly waives to the rights contained in Articles 2848
and 2849 of the Civil Code and the corresponding provisions of the Codes
including, but not limited to, the undersigned's right to terminate this
Guaranty by reason of you not filing a suit or continuing therewith against the
Customer for a period of more than three months. All settlements, compromises,
accounts stated and agreed balances made in good faith between the Customer, its
successors or assigns, and you shall be binding upon and shall not affect the
liability of the undersigned.
Payment of all amounts now or hereafter owed to the undersigned by the
Customer or any other obligor for any of the Obligations is hereby subordinated
in right of payment to the indefeasible payment in full to you of all
Obligations and is hereby assigned to you as a security therefor. The
undersigned hereby irrevocably and unconditionally waives and relinquishes all
statutory, contractual, and all other claims against the Customer, any other
obligor for any of the Obligations, any collateral therefor, or any other assets
of the Customer or any such other obligor, for subrogation, reimbursement,
exoneration, contribution, indemnification, set off or other recourse in respect
of sums paid or payable to you by the undersigned hereunder, and the undersigned
hereby further irrevocably and unconditionally waives and relinquishes any and
all other benefits which it might otherwise directly or indirectly receive or be
entitled to receive by reason of any amounts paid by, or collected or due from,
it, the Customer or any other obligor for any of the Obligations, or realized
from any of their respective assets.
If more than one person signs this document as guarantor: (i) in terms of
Article 2827 of the Civil Code and the corresponding provisions of the Codes,
all signatories of this Guaranty sign it as soldiery obligees, all of them
jointly and severally liable under this Guaranty, and (ii) all references made
in the text of this Guaranty to the word "undersigned" will include all these
persons which sign this Guaranty. The undersigned will not be released from its
obligations hereunder unless your acts constitute gross negligence or willful
misconduct, the undersigned cannot surrogate on the rights, privileges or liens
held by you, therefore waiving to the rights contained in Article 2845 of the
Civil Code and the corresponding provisions of the Codes.
In case of substantial changes in the terms of any Documents, the
Undersigned agrees that this Guaranty shall remain in full force, and effect
unless otherwise required by you. If, pursuant to new circumstances you consider
that a new guaranty needs to be agreed upon, the undersigned agrees to modify
the terms and obligations herein, pursuant to the condition stated by you.
As used in this Guaranty, the word "person" shall include any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, or any government or any political
subdivision thereof.
This Guaranty is intended by the parties as a final expression of the
guaranty of the undersigned and is also intended as a complete and exclusive
statements of the terms thereof. No course of dealing, course of performance or
trade usage, nor any paid evidence of any kind, shall be used to supplement or
modify any of the terms hereof. Nor are there any conditions to the full
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<PAGE>
effectiveness of this Guaranty. This Guaranty and each of its provisions may
only be waived, modified, varied, released, terminated or surrender, in whole or
in part, by a duly authorized written instrument signed by you. No failure by
you to exercise your rights hereunder shall give rise to any estoppel against
you, or excuse the undersigned from performing hereunder. Your waiver of any
right to demand performance hereunder shall not be a waiver of any subsequent or
other rights to demand performance hereunder.
This Guaranty shall bind the undersigned's successors and assigns and the
benefits thereof shall extend to and include your successors and assigns. In the
event of default hereunder, you may at any time inspect undersigned's records,
or at your option, undersigned shall furnish you with a current independent
audit report.
If any provisions of this Guaranty are in conflict with any applicable law
or regulation, then such provisions shall be deemed null and void to the extent
that they may conflict therewith, but without invalidating any other provisions
hereof.
The undersigned agrees that this Guaranty, its interpretation and
application, will be subject in all respects to the laws of the State of New
York (without giving effect to any conflicts of laws principles thereof), its
interpretive case law and jurisprudence and its English version will prevail in
the event any legal proceeding related to this Guaranty is brought therein. The
undersigned also agrees that this Guaranty, its interpretation and application
will be subject in all respects to the laws of Mexico, its interpretative case
law and jurisprudence, and its Spanish version will prevail in the event that
any legal proceeding related to this Guaranty is brought therein.
Undersigned (a) hereby irrevocably submits itself to the nonexclusive
jurisdiction of the state courts of New York, United States of America, and the
United States District Court for the Southern District of New York, if any legal
proceeding related to this Guaranty is brought in the State of New York, and to
the courts within the Federal District of the United Mexican States if any legal
proceeding related to this Guaranty is brought in Mexico, for the purposes of
any suit, action or other proceeding arising out of this Guaranty, or any of the
transactions contemplated hereby brought by any party or parties thereto, or
their successors or assigns, (b) hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in, to the
fullest extent permitted by law, such courts, and (c) to the extent that
undersigned has or hereafter may acquire any immunity from jurisdiction of any
such court or from any legal process therein hereby waives, to the fullest
extent permitted by law, such immunity, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding, the
defense of sovereign immunity, or any claim (i) that it is not personally
subject to the jurisdiction of the above-named courts by reason of sovereign
immunity or otherwise, (ii) that it is immune from any legal process (whether
through service or notice, attachment prior to the judgment, attachments in aid
of execution, execution or otherwise) with respect to itself of its property, by
reason of sovereign immunity, (iii) that the suit, action or proceeding is
brought in an inconvenient forum, (iv) the venue of the suit, action or
proceeding is improper, or (v) that this Guaranty may not be enforced in or by
such courts.
Undersigned further agrees that a final judgment against it in any such
action or proceeding shall be conclusive, and may be enforced in other
jurisdictions (including, without limitation, Mexico) by suit on the judgment or
in any other manner provided by law, and a certified or true copy of such final
judgment shall be conclusive evidence of the fact and of the amount of any
indebtedness or liability of undersigned therein described; provided that
nothing herein shall affect your right or the right of your successors or
assigns to serve legal process in any other manner permitted by law or
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<PAGE>
affect your rights or the rights of your successors or assigns to bring action
or proceeding against undersigned or its property in the courts of other
jurisdictions.
Undersigned waives any and all defenses it may have that this Guaranty is
unenforceable according to the laws of Mexico or the United States.
IN WITNESS WHEREOF, this Guaranty is executed the day and year above
written.
GUARANTOR
TARRANT MEXICO, S. DE R. L. DE C.V.
/s/ Corazon R. Reyes
----------------------------
By: Ms. Corazon R. Reyes
Attorney in Fact
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<PAGE>
EXHIBIT 10.79.1
AMENDMENT NO. 1 TO CORPORATE GUARANTY
THIS AMENDMENT NO. 1 TO CORPORATE GUARANTY is made as of the ____day of
_________, 1999, by and between GENERAL ELECTRIC CAPITAL CORPORATION ("Lender")
and TARRANT MEXICO, S DE R.L. DE C.V. ("Guarantor").
Guarantor has heretofore executed and delivered certain Corporate Guaranty
dated as of ____, 1999 (the "Guaranty") in favor of Lender, and the Guarantor
and Lender desire to amend the Guaranty as hereinafter set forth. Capitalized
terms used herein without definition shall have the meaning given them in the
Guaranty.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Guaranty is hereby amended as follows:
(a) The second (2nd) full paragraph set forth on page 2 of the
Guaranty is hereby deleted and the following is inserted in lieu
thereof:
"The Undersigned expressly and irrevocably waives any right of
beneficios de orden, excusion, division, quita, novacion, espera
and modificacion which may be available to it under Articles 2813,
2814, 2815, 2817, 2818, 2823, 2836, 2840, 2845, 2846, 2847, 2848,
2849. The Undersigned represents that it is familiar with the
contents of these articles and agrees that they need not to be
reproduced in this Guaranty".
(b) The third (3rd) full paragraph set forth on page 2 of the Guaranty
is hereby amended by deleting the last sentence thereof.
2. Except as expressly set forth herein, the terms and conditions of the
Guaranty remain unmodified and in full force and effect.
3. THIS AMENDMENT NO. 1 TO CORPORATE GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH
STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to
Corporate Guaranty to be executed as of the date first above set forth.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Joseph P. Cunningham
------------------------
Name: Joseph P. Cunningham
------------------------
Title: Sr. Risk Analyst
------------------------
TARRANT MEXICO, S DE R.L. DE C.V.
By: /s/ Corazon Reyes
------------------------
Name: Corazon Reyes
------------------------
Title: Director
------------------------
<PAGE>
Exhibit 10.80
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of ___________________, 1999
("Agreement"), by and between General Electric Capital Corporation, a New York
corporation with an address at 44 Old Ridgebury Road, Danbury, CT 06810
("Secured Party"), and Tarrant Mexico, S de R.L. de C.V., a corporation
organized and existing under the laws of the state of __________ with its chief
executive offices located at __________________________________ ("Debtor").
In consideration of the promises herein contained and of certain other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its successors
and assigns forever, a security interest in and against any and all property
listed on any collateral schedule now or hereafter annexed hereto or made a part
hereof ("Collateral Schedule"), and in and against any and all additions,
attachments, accessories and accessions thereto, any and all substitutions,
replacements or exchanges therefor, and any and all insurance and/or other
proceeds thereof (all of the foregoing being hereinafter individually and
collectively referred to as the "Collateral"). The foregoing security interest
is given to secure the payment and performance of any and all debts, obligations
and liabilities of any kind, nature or description whatsoever (whether primary,
secondary, direct, contingent, sole, joint or several, or otherwise, and whether
due or to become due) of (a) Debtor to Secured Party, now existing or hereafter
arising, under this Agreement, any Collateral Schedule, the Corporate Guaranty
dated the date hereof (the "Guaranty") from Debtor in favor of Secured Party and
the Trust (as hereinafter defined) and (b) Tarrant Apparel Group ("Tarrant") to
Secured Party, now existing or hereafter arising under that certain Loan
Agreement dated the date hereof, the Promissory Note dated the date hereof from
Tarrant to Secured Party in the original principal amount of U.S. $12,500,000.00
and the Debt Documents (as defined in the Loan Agreement), and any renewals,
extensions and modifications of any such debts, obligations and liabilities (all
of the foregoing being hereinafter referred to as the "Indebtedness").
The parties hereto expressly acknowledge that Secured Party, Debtor and GE
Capital Bank, S.A., Division Fiduciaria, Institucion de Banca Multiple, Grupo
Financiero GE Capital (a Mexican Banking Institution duly authorized to act as
such - the "Trustee"), are parties to that certain Administration Trust
Agreement number _______dated ______________, 1999 (the "Trust"), wherein
Secured Party has placed the Collateral to further secure Debtor's obligations
to Secured Party under this Agreement. In connection with the foregoing and
without prejudice to Secured Party's rights hereunder and under the Trust,
Secured Party hereby agrees not to give any instructions to the Trustee to
relocate or assert control over the Collateral unless an Event of Default (as
this term is defined in Section 7 below) occurs hereunder and Debtor receives
the notice required pursuant to the terms of the Trust. Secured Party and Debtor
further agree that, in the event of an inconsistency between the terms and
conditions of this Agreement and the terms and conditions of the Trust, the
terms of this Agreement shall govern the resolution of any dispute between
Secured Party and Debtor relating to the Collateral.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof and
as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of this
Agreement, has its chief executive offices at the location set forth in such
paragraph, and is, and will remain, duly qualified and licensed in every
jurisdiction wherever necessary to carry on its business and operations;
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(b) Debtor has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, the Guaranty and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt Documents");
(c) This Agreement and the other Debt Documents have been duly authorized,
executed and delivered by Debtor and constitute legal, valid and binding
agreements enforceable under all applicable laws in accordance with their terms,
except to the extent that the enforcement of remedies may be limited under
applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into, or
performance by, Debtor of any of the Debt Documents, except such as may have
already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will
not (i) violate any of the organizational documents of Debtor or any judgment,
order, law or regulation applicable to Debtor, or (ii) result in any breach of,
constitute a default under, or result in the creation of any lien, claim or
encumbrance on any of Debtor's property (except for liens in favor of Secured
Party) pursuant to, any indenture mortgage, deed of trust, bank loan, credit
agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Debtor which if adversely decided against Debtor would, in the aggregate, have a
material adverse effect on Debtor, its business or operations, or its ability to
perform its obligations under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection with
the Indebtedness have been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for personal,
family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and
Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority to
grant the security interest described in this Agreement;
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for (i)
liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes
being contested in good faith and which do not involve, in the reasonable
judgment of Secured Party, any risk of the sale, forfeiture or loss of any of
the Collateral, and (iii) inchoate materialmen's, mechanic's, repairmen's and
similar liens arising by operation of law in the normal course of business for
amounts which are not delinquent (all of such permitted liens being hereinafter
referred to as "Permitted Liens");
(l) Debtor has good and marketable title to its assets as disclosed on any
balance sheets supplied to Secured Party pursuant to this Agreement, including,
without limitation, the Collateral. Such property and assets (including, without
limitation, the Collateral) are subject to no lien or encumbrance of any kind,
except for liens arising pursuant to or expressly permitted by this Agreement;
and
(m) The real estate where the Collateral is and shall be located
throughout the term hereof is located at the location set forth on the
applicable Collateral Schedule, and such real estate is free and clear of any
lien or encumbrance of any kind whatsoever and such is evidenced by a
certificate of no lien
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<PAGE>
(Certificado de Libertad de Gravamenes) issued by the Public Registry of the
State in which the real estate is located, a copy of which shall be delivered by
Debtor to Secured Party.
3. COLLATERAL.
(a) Until the declaration of an Event of Default hereunder and at all
times subject to the Trust, Debtor shall remain in possession of the Collateral;
provided, however, that Secured Party shall have the right to possess (i) any
chattel paper or instrument that constitutes a part of the Collateral, and (ii)
any other Collateral which because of its nature may require that Secured
Party's security interest therein be perfected by possession. Secured Party, its
successors and assigns, and their respective agents, shall have the right to
examine and inspect any of the Collateral at any time during normal business
hours upon reasonable notice.
(b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good condition and working order, (iii)
use and maintain the Collateral only in compliance with all applicable laws, and
(iv) keep all of the Collateral free and clear of all liens, claims and
encumbrances (except for Permitted Liens).
(c) Subject to the terms of the Trust, Debtor shall not, without the prior
written consent of Secured Party, (i) part with possession of any of the
Collateral (except to Secured Party or for maintenance and repair), (ii) remove
any of the Collateral from its original location, or (iii) sell, rent, lease,
mortgage, grant a security interest in or otherwise transfer or encumber (except
for Permitted Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof, or on this Agreement or any of the other Debt
Documents. Secured Party may discharge taxes, liens, security interests or other
encumbrances at any time levied or placed on the Collateral and may pay for the
maintenance, insurance and preservation of the Collateral or to effect
compliance with the terms of this Agreement or any of the other Debt Documents
in the event Debtor fails to do so in accordance with the terms hereof. Debtor
shall reimburse Secured Party, on demand, for any and all costs and expenses
incurred by Secured Party in connection therewith and agrees that such
reimbursement obligation shall be secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of the
Collateral, and Secured Party, its successors and assigns, and their respective
agents, shall have the right to examine, inspect, and make extracts from all of
Debtor's books and records relating to the Collateral at any time during normal
business hours upon reasonable notice.
(f) Any third person at any time and from time to time holding all or any
portion of the Collateral shall be deemed to, and shall, hold the Collateral as
the agent of, and as pledge holder for, Secured Party. At any time and from time
to time, Secured Party may give notice to any third person holding all or any
portion of the Collateral that such third person is holding the Collateral as
the agent of, and as pledge holder for, the Secured Party.
(g) Debtor shall not, without the prior written consent of Secured Party,
rent, lease, mortgage, grant a security interest in or otherwise transfer or
encumber the real estate where the Collateral is and shall be located throughout
the term hereof. Secured Party's consent as aforesaid, shall be conditioned
upon, among other things, Debtor securing from the lessee, mortgagee, creditor,
landlord or otherwise, and delivering to Secured Party a waiver and
subordination, in form and substance satisfactory to Secured Party, from said
person, expressly acknowledging Secured Party's rights and interests in and to
the Collateral. Notwithstanding the foregoing, and among other conditions at
Secured Party's sole discretion, such waiver and subordination shall expressly
and irrevocably afford Secured Party, at no cost to Secured Party, the right to
maintain the Collateral at said location, for at least 180 days following the
date any such mortgagee, creditor, landlord or other interested party exercises
its respective rights under the relevant mortgage, lease or security document.
3
<PAGE>
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary, and for any or all Collateral which are vehicles, for
risk of loss by collision, and where requested by Secured Party, against other
risks as required thereby, for the full replacement value thereof, with
companies, in amounts and under policies acceptable to Secured Party. Debtor
shall, if Secured Party so requires, deliver to Secured Party policies or
certificates of insurance evidencing such coverage. Each policy shall name
Secured Party as loss payee thereunder, shall provide for coverage to Secured
Party regardless of the breach by Debtor of any warranty or representation made
therein, shall not be subject to co-insurance, and shall provide for thirty (30)
days written notice to Secured Party of the cancellation or material
modification thereof. Debtor hereby appoints Secured Party as its attorney in
fact to make proof of loss, claim for insurance and adjustments with insurers,
and to execute or endorse all documents, checks or drafts in connection with
payments made as a result of any such insurance policies. Proceeds of insurance
shall be applied, at the option of Secured Party, to repair or replace the
Collateral or to reduce any of the Indebtedness secured hereby.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party in the event of (i) any
change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or worn
out, or (v) any lien, claim or encumbrance attaching or being made against any
of the Collateral other than Permitted Liens.
(b) Debtor will deliver to Secured Party Debtor's complete financial
statements, certified by a recognized firm of certified public accountants,
within ninety (90) days of the close of each fiscal year of Debtor. Debtor will
also deliver to Secured Party copies of Debtor's quarterly financial reports
certified by Debtor's chief financial officer, within ninety (90) days after the
close of each of Debtor's fiscal quarter. Debtor will deliver to Secured Party
copies of all Forms 10-K and 10-Q, if any, within 30 days after the dates on
which they are filed with the Securities and Exchange Commission. Any and all
financial statements submitted and to be submitted to Secured Party have and
will have been prepared on a basis of generally accepted accounting principles,
and are and will be complete and correct and fairly present Debtor's financial
condition as at the date thereof. Secured Party may at any reasonable time
examine the books and records of Debtor and make copies thereof upon reasonable
notice.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured Party
such further information, execute and deliver to Secured Party such documents
and instruments (including, without limitation, Uniform Commercial Code
financing statements and any other public filings) and do such other acts and
things, as Secured Party may at any time reasonably request relating to the
perfection or protection of the security interest created by this Agreement or
for the purpose of carrying out the intent of this Agreement. Without limiting
the foregoing, Debtor shall cooperate and do all acts deemed necessary or
advisable by Secured Party to continue in Secured Party a perfected first
security interest in the Collateral, and shall obtain and furnish to Secured
Party any subordinations, releases, landlord, lessor, or mortgagee waivers, and
similar documents as may be from time to time requested by, and which are in
form and substance satisfactory to, Secured Party.
(b) Debtor shall indemnify and defend the Secured Party, its successors
and assigns, and their respective directors, officers and employees, from and
against any and all claims, actions and suits (including, without limitation,
related attorneys' fees) of any kind, nature or description whatsoever arising,
directly or indirectly, in connection with any of the Collateral except claims
arising as a result of the gross negligence or intentional misconduct of Secured
Party or Trustee.
4
<PAGE>
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other Debt
Documents upon the occurrence of any of the following "Event(s) of Default":
(a) Debtor fails to pay any installment or other amount due or coming due
under any of the Debt Documents within ten (10) days after its due date;
(b) Debtor, without the prior written consent of Secured Party, attempts
to or does sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure, or maintain in effect at all times, any of
the insurance on the Collateral in accordance with Section 4 of this Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty, representation or statement made by Debtor in any of the
Debt Documents or otherwise in connection with any of the Indebtedness shall be
false or misleading in any material respect when made;
(f) Any of the Collateral being subjected to, attachment, execution, levy,
seizure or confiscation in any legal proceeding;
(g) Any default by Debtor under any other agreement between Debtor and
Secured Party;
(h) Any dissolution, termination of existence, insolvency or business
failure of Debtor;
(i) The appointment of a receiver for all or of any part of the property
of Debtor, or any assignment for the benefit of creditors by Debtor;
(j) The filing of a petition by Debtor under any bankruptcy, insolvency or
similar law, or the filing of any such petition against Debtor if the same is
not dismissed within thirty (30) days of such filing;
(k) Debtor defaults under any other material obligation for (i) borrowed
money, (ii) the deferred purchase price of property or (iii) payments due under
any lease agreement;
(l) Debtor shall have consolidated with, merged into or conveyed or leased
substantially all of its assets as an entirety to any person (such actions being
referred to as an "Event"), unless not less than sixty (60) days prior to such
Event: (x) such person is organized and existing under the laws of the United
States or any state, and executes and delivers to Secured Party an agreement
containing an effective assumption by such person of the due and punctual
performance of this Agreement or guaranty thereof, as the case may be, and (y)
Secured Party is reasonably satisfied as to the credit worthiness of such
person; or
(m) Tarrant shall not own the majority of Debtor's outstanding capital
stock at any time.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option, may declare any or all of the Indebtedness, to be
immediately due and payable, without demand or notice to Debtor or Tarrant. The
obligations and liabilities accelerated thereby shall bear interest (both before
and after any judgment) until paid in full at the lower of the Prime Rate (as
hereinafter defined) plus three percent (3%) per annum or the maximum rate not
prohibited by applicable law. As used herein, "Prime Rate" shall mean the
floating and fluctuating per annum rate of interest of Citibank, N.A. (the
5
<PAGE>
"Bank") at any time or from time to time established and declared by the Bank in
its sole and absolute discretion as its prime rate. The Prime Rate does not
necessarily represent the lowest rate of interest charged by the Bank to
borrowers.
(b) Upon such declaration of default, Secured Party shall have all of the
rights and remedies of a Secured Party under the Uniform Commercial Code, and
under any other applicable law. Without limiting the foregoing, Secured Party
shall have the right to (i) notify any account debtor of Debtor or any obligor
on any instrument which constitutes part of the Collateral to make payment to
the Secured Party, (ii) with or without legal process, enter any premises where
the Collateral may be and take possession and/or remove said Collateral from
said premises, (iii) sell the Collateral at public or private sale, in whole or
in part, and have the right to bid and purchase at said sale, (iv) lease or
otherwise dispose of all or part of the Collateral, applying proceeds therefrom
to the obligations then in default; and/or (v) maintain the Collateral at the
premises at which the Collateral is located, and use such premises for any of
the purposes stated herein, for 180 days after Secured Party takes possession of
the Collateral free of any rent or cost to Secured Party. If requested by
Secured Party, Debtor shall promptly assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Secured Party may also render any or all
of the Collateral unusable at the Debtor's premises and may dispose of such
Collateral on such premises without liability for rent or costs. Any notice
which Secured Party is required to give to Debtor under the Uniform Commercial
Code or the laws of the jurisdiction in which the Collateral is located of the
time and place of any public sale or the time after which any private sale or
other intended disposition of the Collateral is to be made shall be deemed to
constitute reasonable notice if such notice is given to the last known address
of Debtor at least five (5) days prior to such action.
(c) Proceeds from any sale or lease or other disposition shall be applied:
first, to all costs of repossession, storage, and disposition including without
limitation reasonable attorneys', appraisers', and auctioneers' fees; second, to
discharge the obligations then in default; third, to discharge any other
indebtedness then due and owing (whether by acceleration or otherwise) of Debtor
to Secured Party, whether as obligor, endorsor/endorser, guarantor, surety or
indemnitor; fourth, to expenses incurred in paying or settling liens and claims
against the Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents are
placed in the hands of an attorney for collection of money due or to become due
or to obtain performance of any provision hereof, Debtor agrees to pay all
reasonable attorneys' fees incurred by Secured Party, and further agrees that
payment of such fees is secured hereunder.
(e) Secured Party's rights and remedies hereunder or otherwise arising are
cumulative and may be exercised singularly or concurrently. Neither the failure
nor any delay on the part of the Secured Party to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. Secured
Party shall not be deemed to have waived any of its rights hereunder or under
any other agreement, instrument or paper signed by Debtor unless such waiver be
in writing and signed by Secured Party. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any future
occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY,
THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED
HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT
MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP
THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS
WAIVER
6
<PAGE>
IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
9. MISCELLANEOUS.
(a) This Agreement and/or any of the other Debt Documents may be assigned,
in whole or in part, by Secured Party without notice to Debtor, and Debtor
hereby waives and agrees not to assert against any such assignee, or assignee's
assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has
or may at any time have against Secured Party for any reason whatsoever. Debtor
agrees that if Debtor receives written notice of an assignment from Secured
Party, Debtor will pay all amounts payable under any assigned Debt Documents to
such assignee or as instructed by Secured Party. Debtor also agrees to confirm
in writing receipt of the notice of assignment as may be reasonably requested by
assignee.
(b) All notices to be given in connection with this Agreement shall be in
writing, shall be addressed to the parties at their respective addresses set
forth hereinabove (unless and until a different address may be specified in a
written notice to the other party), and shall be deemed given (i) on the date of
receipt if delivered in hand or by facsimile transmission, (ii) on the next
business day after being sent by express mail, and (iii) on the fourth business
day after being sent by regular, registered or certified mail. As used herein,
the term "business day" shall mean and include any day other than Saturdays,
Sundays, or other days on which commercial banks in Puebla, Mexico, Los Angeles,
California or New York, New York are required or authorized to be closed.
(c) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and shall
inure to the benefit of Secured Party, its successors and assigns.
(d) This Agreement and its Collateral Schedules constitute the entire
agreement between the parties with respect to the subject matter hereof and
supercede all prior understandings (whether written, verbal or implied) with
respect thereto. This Agreement and its Collateral Schedules shall not be
changed or terminated orally or by course of conduct, but only by a writing
signed by both parties hereto. Section headings contained in this Agreement have
been included for convenience only, and shall not affect the construction or
interpretation hereof.
(e) This Agreement shall continue in full force and effect until all of
the Indebtedness has been indefeasibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of the Guaranty, the Note or any of the
other documents evidencing any of the Indebtedness shall not affect the right of
Secured Party to retain the Collateral for such other Indebtedness as may then
exist or as it may be reasonably contemplated will exist in the future. This
Agreement shall automatically be reinstated in the event that Secured Party is
ever required to return or restore the payment of all or any portion of the
Indebtedness (all as though such payment had never been made).
(f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS
PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT.
(g) Debtor acknowledges that it has been advised that General Electric
Capital Corporation may act hereunder for itself and as agent for certain third
parties (each being herein referred to as a "Participant"); and that the
interest of the Secured Party in this Agreement, the Collateral Schedules, the
Notes, related instruments and documents and/or the Collateral may be conveyed
to, in whole or in part,
7
<PAGE>
and may be used as security for financing obtained from, one or more third
parties without the consent of Debtor (the "Syndication"). Debtor agrees
reasonably to cooperate with Secured Party in connection with the Syndication,
including the execution and delivery of such other documents, instruments,
notices, certificates and acknowledgements as reasonably may be required by
Secured Party or such Participant; provided, however, in no event shall Debtor
be required to consent to any change that would adversely affect any of the
economic terms of the transactions contemplated herein.
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound
hereby, have duly executed this Agreement in one or more counterparts, each of
which shall be deemed to be an original, as of the day and year first aforesaid.
SECURED PARTY:
General Electric Capital Corporation
By:__________________________________
Title:_______________________________
DEBTOR:
Tarrant Mexico, S de R.L. de C.V.
By: /s/ Corazon R. Reyes
----------------------------------
Title:_______________________________
8
<PAGE>
EXHIBIT 10.80.1
AMENDMENT NO. 1 TO MASTER SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO MASTER SECURITY AGREEMENT is made as of the __day
of _________, 1999, by and between GENERAL ELECTRIC CAPITAL CORPORATION
("Secured Party") and TARRANT MEXICO, S DE R.L. DE C.V. ("Debtor").
The parties have heretofore entered into that certain Master Security
Agreement dated as of _____, 1999 (the "Agreement"), and desire to amend the
Agreement as hereinafter set forth. Capitalized terms used herein without
definition shall have the meaning given them in the Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The Agreement is hereby amended as follows:
(a) The second paragraph of Section 1 of the Agreement is hereby
amended by deleting the reference to "Administration Trust
Agreement number F/172 dated August 26, 1999" therein and
inserting the following in lieu thereof:
"Irrevocable Guaranty Trust Agreement number F/172 dated August
26, 1999".
(b) The second paragraph of Section 1 of the Agreement is further
amended by deleting the last clause of the last sentence thereof
and replacing it with the following:
"shall govern the resolution of any dispute, other than one
arising under the Mexican or Spanish language loan
documentation".
2. Except as expressly set forth herein, the terms and conditions of the
Agreement remain unmodified and in full force and effect.
3. THIS AMENDMENT NO. 1 TO MASTER SECURITY AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH
STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to Master
Security Agreement to be executed as of the date first above set forth.
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Joseph P. Cunningham
---------------------------------
Name: Joseph P. Cunningham
---------------------------------
Title: Sr. Risk Analyst
---------------------------------
TARRANT MEXICO, S DE R.L. DE C.V.
By: /s/ Corazon Reyes
---------------------------------
Name: Corazon Reyes
---------------------------------
Title: Director
---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,224,029
<SECURITIES> 0
<RECEIVABLES> 80,757,672
<ALLOWANCES> 2,366,797
<INVENTORY> 63,298,716
<CURRENT-ASSETS> 154,106,999
<PP&E> 101,452,771
<DEPRECIATION> 7,705,031
<TOTAL-ASSETS> 286,715,368
<CURRENT-LIABILITIES> 122,234,706
<BONDS> 0
0
0
<COMMON> 71,728,298
<OTHER-SE> 72,040,274
<TOTAL-LIABILITY-AND-EQUITY> 286,715,368
<SALES> 304,367,407
<TOTAL-REVENUES> 304,949,978
<CGS> 250,102,157
<TOTAL-COSTS> 250,102,157
<OTHER-EXPENSES> 27,576,965
<LOSS-PROVISION> 72,963
<INTEREST-EXPENSE> 3,394,707
<INCOME-PRETAX> 23,876,149
<INCOME-TAX> 8,755,000
<INCOME-CONTINUING> 15,121,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,121,149
<EPS-BASIC> 1.01
<EPS-DILUTED> 0.92
</TABLE>
