<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Tarrent Apparel Group
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Tarrant Apparel Group
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 3, 1999
----------------
TO THE SHAREHOLDERS OF TARRANT APPAREL GROUP:
Notice is hereby given that the annual meeting (the "Meeting") of the
shareholders of Tarrant Apparel Group (the "Company") will be held at 3151
East Washington Boulevard, Los Angeles, California 90023, on Monday, May 3,
1999 at 10:00 a.m. (California time) for the following purposes:
1. Election of Directors. To elect three persons to the Board of Directors of
the Company to serve until the annual meeting of shareholders to be held in
the year 2001 and until their successors have been elected and qualified.
The following persons are the Board of Directors' nominees:
<TABLE>
<S> <C> <C>
Mark B. Kristof James R. Miller Karen S. Wasserman
</TABLE>
2. Amendment of Employee Incentive Plan. To approve an amendment of the
Employee Incentive Plan increasing from 2,600,000 to 3,600,000 the number
of shares of the Company's Common Stock which may be subject to awards
granted pursuant thereto.
3. Ratification of 1999 Employee Incentive Awards. To ratify the grant of 1999
awards to certain executive officers pursuant to the Employee Incentive
Plan.
4. Ratification of Stock Option Grants. To ratify the grant of options to
purchase an aggregate of 1,000,000 shares of Common Stock to certain
executive officers.
5. Ratification of Appointment of Independent Auditors. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 1999.
6. Other Business. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
Only persons who are shareholders of record (the "Shareholders") at the
close of business on March 26, 1999 are entitled to notice of and to vote in
person or by proxy at the Meeting or any adjournment thereof.
The Proxy Statement which accompanies this Notice contains additional
information regarding the proposals to be considered at the Meeting, and
Shareholders are encouraged to read it in its entirety.
As set forth in the enclosed Proxy Statement, proxies are being solicited by
and on behalf of the Board of Directors of the Company. All proposals set
forth above are proposals of the Company. It is expected that these materials
first will be mailed to Shareholders on or about April 2, 1999.
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU THEN MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE. IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS,
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
/s/ Gerard Guez
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated April 2, 1999
Los Angeles, California
<PAGE>
TARRANT APPAREL GROUP
3151 East Washington Boulevard
Los Angeles, California 90023
(323) 780-8250
----------------
PROXY STATEMENT
1999 Annual Meeting of Shareholders
May 3, 1999
----------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors") of Tarrant
Apparel Group (the "Company") for use at the 1999 annual meeting (the
"Meeting") of the shareholders of the Company to be held on Monday, May 3,
1999, at 3151 East Washington Boulevard, Los Angeles, California 90023, at
10:00 a.m. (California time) and at any adjournment thereof. Gerard Guez and
Todd Kay, the designated proxyholders (the "Proxyholders"), are members of the
Company's management. Only shareholders of record (the "Shareholders") on
March 26, 1999 (the "Record Date") are entitled to notice of and to vote in
person or by proxy at the Meeting or any adjournment thereof. This Proxy
Statement and the enclosed proxy card (the "Proxy") will be first mailed to
Shareholders on or about April 2, 1999.
Matters to be Considered
The matters to be considered and voted upon at the Meeting will be:
1. Election of Directors. To elect three persons to the Board of Directors of
the Company to serve until the annual meeting of shareholders to be held in
the year 2001 and until their successors have been elected and qualified.
The following persons are the Board of Directors' nominees:
<TABLE>
<S> <C> <C>
Mark B. Kristof James R. Miller Karen S. Wasserman
</TABLE>
2. Amendment of Employee Incentive Plan. To approve an amendment of the
Employee Incentive Plan increasing from 2,600,000 to 3,600,000 the number
of shares of the Company's Common Stock which may be subject to awards
granted pursuant thereto.
3. Ratification of 1999 Employee Incentive Awards. To ratify the grant of 1999
awards to certain executive officers pursuant to the Employee Incentive
Plan.
4. Ratification of Stock Option Grants. To ratify the grant of options to
purchase an aggregate of 1,000,000 shares of Common Stock to certain
executive officers.
5. Ratification of Appointment of Independent Auditors. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 1999.
6. Other Business. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
Cost of Solicitation of Proxies
This Proxy solicitation is made by the Board of Directors of the Company,
and the Company will bear the costs of this solicitation, including the
expense of preparing, assembling, printing and mailing this Proxy Statement
and any other material used in this solicitation of Proxies. The solicitation
of Proxies will be made by mail and may be supplemented by telephone or other
personal contact to be made without special compensation by regular officers
and employees of the Company. If it should appear desirable to do so to ensure
adequate representation at the Meeting, officers and regular employees may
communicate with Shareholders, banks, brokerage houses, custodians, nominees
and others, by telephone, facsimile transmissions, telegraph, or in person to
request that Proxies be furnished. The Company will reimburse banks, brokerage
houses and other custodians,
<PAGE>
nominees and fiduciaries for their reasonable expenses in forwarding proxy
materials to their principals. The total estimated cost of the solicitation of
Proxies is $6,000.
Outstanding Securities and Voting Rights; Revocability of Proxies
The authorized capital of the Company consists of (i) 20,000,000 shares of
common stock ("Common Stock"), of which 13,942,205 shares were issued and
outstanding on the Record Date and (ii) 2,000,000 shares of Preferred Stock,
none of which are issued and outstanding on the Record Date. A majority of the
outstanding shares of the Common Stock constitutes a quorum for the conduct of
business at the Meeting. Abstentions will be treated as shares present and
entitled to vote for purposes of determining the presence of a quorum.
Each Shareholder is entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his or her name on the books of the Company
as of the Record Date on any matter submitted to the Shareholders.
The Company's Restated Articles of Incorporation does not authorize
cumulative voting. In the election of directors, the candidates receiving the
highest number of votes will be elected. Each other proposal described herein
requires the affirmative vote of a majority of the outstanding shares of
Common Stock present in person or represented by proxy and entitled to vote at
the Meeting. Accordingly, broker non-votes and abstentions from voting on any
matter, other than the election of directors, will have the effect of a vote
"AGAINST" such matter.
Of the shares of Common Stock outstanding on the Record Date, 9,012,222
shares of Common Stock (or approximately 64.6% of the issued and outstanding
shares of Common Stock) were owned by directors and executive officers of the
Company or were subject to agreements entitling directors or executive
officers to vote such shares at the Meeting. Such persons have informed the
Company that they will vote "FOR" the election of the nominees to the Board of
Directors identified herein, "FOR" the amendment of the Employee Incentive
Plan, "FOR" the ratification of 1999 employee incentive awards, "FOR" the
ratification of stock option grants to certain executive officers and "FOR"
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors, all as described herein.
A Proxy for use at the Meeting is enclosed. The Proxy must be signed and
dated by you or your authorized representative or agent. Telegraphed, cabled
or telecopied Proxies are also valid. You may revoke a Proxy at any time
before it is exercised at the Meeting by submitting a written revocation to
the Secretary of the Company or a duly executed Proxy bearing a later date or
by voting in person at the Meeting.
If you hold Common Stock in "street name" and you fail to instruct your
broker or nominee as to how to vote such Common Stock, your broker or nominee
may, in its discretion, vote such Common Stock "FOR" the election of the Board
of Directors' nominees, "FOR" the ratification of 1999 employee incentive
awards and "FOR" the ratification of the appointment of Ernst & Young LLP as
the Company's independent auditors. If, however, you fail to instruct your
broker or nominee as to how to vote such Common Stock, your broker or nominee
may not, pursuant to applicable stock exchange rules, vote such Common Stock
with respect to the proposal to ratify the amendment of the Employee Incentive
Plan or the proposal to ratify stock option grants to certain executive
officers.
Unless revoked, the shares of Common Stock represented by Proxies will be
voted in accordance with the instructions given thereon. In the absence of any
instruction in the Proxy, such shares of Common Stock will be voted "FOR" the
election of the Board of Directors' nominees, "FOR" the amendment of the
Employee Incentive Plan, "FOR" the ratification of the 1999 employee incentive
awards, "FOR" the ratification of stock option grants to certain executive
officers and "FOR" the ratification of the appointment of Ernst & Young LLP as
the Company's independent auditors.
Recently, the Securities and Exchange Commission ("the "SEC") amended its
rule governing a company's ability to use discretionary proxy authority with
respect to shareholder proposals which were not submitted by the shareholders
in time to be included in the proxy statement. As a result of that rule
change, in the event a shareholder proposal was not submitted to the Company
prior to February 15, 1999, the enclosed Proxy will
2
<PAGE>
confer authority on the Proxyholders to vote the shares in accordance with
their best judgment and discretion if the proposal is presented at the
Meeting. As of the date hereof, no shareholder proposal has been submitted to
the Company, and management is not aware of any other matters to be presented
for action at the Meeting. However, if any other matters properly come before
the Meeting, the Proxies solicited hereby will be voted by the Proxyholders in
accordance with the recommendations of the Board of Directors. Such
authorization includes authority to appoint a substitute nominee for any Board
of Directors' nominee identified herein where death, illness or other
circumstance arises which prevents such nominee from serving in such position
and to vote such Proxy for such substitute nominee.
Security Ownership of Principal Shareholders and Management
The following table sets forth the beneficial ownership of Common Stock as
of the Record Date, by each person known to the Company to be the beneficial
owner of more than five percent of the outstanding shares of Common Stock
(other than depositories), by each executive officer, director and nominee for
director of the Company, and by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owner(1) Ownership(2) Owned(3)
---------------------- ------------ ----------
<S> <C> <C>
Gerard Guez.................................. 6,233,335(4)(5)(6) 43.0
Todd Kay..................................... 3,050,000(4)(5)(6) 21.5
Limited Direct Associates, L.P. ............. 1,000,000(4) 7.2
Lord, Abbett & Co. .......................... 750,115 5.4
Corazon R. Reyes............................. 125,278(6) *
Karen S. Wasserman........................... 72,778(6) *
Mark B. Kristof.............................. 42,222 *
Eddy Yuen Tak Yu............................. 92,750(6) *
Barry S. Aved................................ 2,000(6) *
James R. Miller.............................. 6,000(6) *
All directors and executive officers as a
group (eight persons)....................... 9,624,363(4)(6) 61.4
</TABLE>
- --------
* Less than 1%.
(1) The address of the directors and executive officers of the Company is 3151
East Washington Boulevard, Los Angeles, California 90023. The address of
Limited Direct Associates, L.P. is c/o The Limited, Inc., Three Limited
Parkway, P.O. Box 16000, Columbus, Ohio 43230. The address of Lord, Abbett
& Co. is 767 Fifth Avenue, New York, New York 10153.
(2) Except as set forth below, the named shareholder has sole voting power and
investment power with respect to the shares listed, subject to community
property laws where applicable.
(3) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after the Record Date are deemed to be outstanding
in calculating the percentage ownership of the person (or group) but are
not deemed to be outstanding as to any other person or group.
(4) Includes 666,667 shares sold by Mr. Guez and 333,333 shares sold by Mr.
Kay on October 22, 1998 to Limited Direct Associates LP, an entity 100%
owned by The Limited, Inc. ("LDA"), upon the exercise of an option granted
by Messrs. Guez and Kay to LDA at the time of the Company's initial public
offering. The shares are subject to a lockup provision, which prohibits
LDA from selling the shares until October 9, 1999. Messrs. Guez and Kay
will continue to have the right to vote the shares for one year following
the exercise of the option, and will also have a right of first refusal to
purchase such shares, subject to certain exceptions.
(5) Gerard Guez and Todd Kay have pledged an aggregate of 1,310,000 shares and
161,667 shares, respectively, to financial institutions to secure the
repayment of loans to such shareholders or corporations controlled by such
shareholders.
(6) Excludes 985,080 shares which certain directors and executive officers
will have the right to purchase upon the exercise of stock options granted
pursuant to the Employee Incentive Plan, which options will become
exercisable in various installments commencing on July 26, 1999.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Directors and Executive Officers
The Restated Bylaws of the Company provide that the number of directors of
the Company shall be fixed from time to time exclusively by the Board of
Directors, but shall not be less than six nor more than eleven. The Board of
Directors has fixed the number of directors at six. The Restated Articles of
Incorporation of the Company provides that, commencing with the 1998 annual
meeting, the Board of Directors shall be divided into two classes which are
elected for staggered two year terms. The term of each class expires at the
annual meeting of shareholders in the year 1999 (Class I) and the year 2000
(Class II).
Only the members of Class I, Mark B. Kristof, James R. Miller and Karen S.
Wasserman, all of whom currently are members of the Board of Directors of the
Company, are nominees for election to the Board of Directors at the Meeting,
to serve until the annual meeting of shareholders to be held in the year 2001
and until their successors have been elected and qualified. All nominees have
indicated their willingness to serve and, unless otherwise instructed, Proxies
will be voted in such a way as to elect as many of these nominees as possible
under applicable voting rules. In the event that a nominee should be unable to
serve as a director, it is intended that the Proxies will be voted for the
election of such substitute nominee, if any, as shall be designated by the
Board of Directors. Management has no reason to believe that any nominee will
be unavailable.
None of the directors, nominees for director or executive officers were
selected pursuant to any arrangement or understanding, other than with the
directors and executive officers of the Company acting within their capacity
as such. There are no family relationships among directors or executive
officers of the Company and, except as set forth above, as of the date hereof,
no directorships are held by any director in a company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. Officers serve at the
discretion of the Board of Directors.
The following table sets forth certain information concerning the directors
and executive officers of the Company as of the Record Date.
<TABLE>
<CAPTION>
Name Age Position Class
---- --- -------- -----
<C> <C> <S> <C>
Chairman of the Board, Chief Executive
Gerard Guez(1)(3)...... 43 Officer and Director II
Todd Kay(3)............ 42 President and Director II
Corazon R. Reyes....... 55 Executive Vice President and Secretary --
Karen S. Wasserman..... 45 Executive Vice President, General
Merchandising Manager and Director I
Vice President--Finance, Chief Financial
Mark B. Kristof........ 48 Officer and Director I
Eddy Yuen Tak Yu....... 44 Executive Vice President--Sourcing and
General Manager--Tarrant Company Limited --
Barry S. Aved(1)(2)(3). 55 Director II
James R. Miller(1)(2).. 57 Director I
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
GERARD GUEZ founded the Company in 1988 and has served as its Chairman of
the Board and Chief Executive Officer since its inception. Mr. Guez also
founded Tarrant Company Limited ("Tarrant HK"), the Company's Hong Kong
subsidiary, in 1985, and he has served as its Chairman and Chief Executive
Officer since that date. Prior to founding Tarrant HK, Mr. Guez served as the
President of Sasson Jeans, L.A., Inc., which was a manufacturer and
distributor of denim apparel under the "Sasson" license.
TODD KAY has served as President and a director of the Company since 1988.
Mr. Kay has also served as a director of Tarrant HK since 1986. Prior to
joining the Company, Mr. Kay was a sales manager for Sasson Jeans, L.A., Inc.
from 1979 to 1980 and served as President of JAG Beverly Hills, Inc., an
apparel manufacturer, from 1980 to 1985.
4
<PAGE>
CORAZON R. REYES has served as Secretary since the Company's inception and
as an Executive Vice President since July 1997. From the Company's inception
in 1988 until 1994, Ms. Reyes served as Controller and a director of the
Company, and from 1994 until July 1997, she served as Chief Operating Officer
and as a director. Ms. Reyes has also served as a director of Tarrant HK since
1988. Ms. Reyes served in various accounting and operations positions at
Sasson Jeans, L.A., Inc. and other affiliated garment manufacturing companies
from 1980 to 1988. Ms. Reyes received a B.S. in Business Administration from
the University of the East in the Philippines and was a C.P.A. in that
country. She is a member of the American Management Association.
KAREN S. WASSERMAN joined the Company in 1988, and until 1994, she served as
a Vice President of the Company. In 1994, Ms. Wasserman was named Executive
Vice President, General Merchandising Manager and a director of the Company.
In her current position, she directs and manages the Company's design teams
and merchandisers and is responsible for the Company's research of fashion
themes and development of product samples. From 1983 to 1988, she was employed
by Express, an apparel retailer that is a division of The Limited, Inc., where
she served from 1986 to 1988 as a Vice President and Merchandise Manager. In
these capacities, she managed the merchandising of shirts, dresses and jackets
from initial product development through product delivery and sales. Ms.
Wasserman holds a Bachelor of Fine Arts degree from Syracuse University.
MARK B. KRISTOF has served as the Vice President--Finance, Chief Financial
Officer and a director of the Company since 1994. From 1992 until joining the
Company, Mr. Kristof served as the Vice President--Finance and Administration
and Chief Financial Officer of Meridian Products, Inc., an importer of seafood
products. From 1989 to 1992, Mr. Kristof served as Treasurer of L.A. Gear,
Inc., a distributor of brand-name footwear and apparel, where he was also
named Vice President--Finance in 1991. Mr. Kristof holds a Masters in Business
Administration from Carnegie-Mellon University and has a Bachelor's degree in
Mechanical Engineering from General Motors Institute.
EDDY YUEN TAK YU has served as General Manager and a director of Tarrant HK
since 1987. He was named Executive Vice President--Sourcing in 1996. Mr. Yuen
Tak Yu manages the Company's sourcing and manufacturing operations that are
based in Hong Kong. Prior to joining the Company in 1987, Mr. Yuen Tak Yu
served as the Sales Manager for Famous Horse Garment Factory, Ltd., a
manufacturer of woven garments, from 1985 to 1987. Mr. Yuen Tak Yu received a
Higher Diploma in Textile Technology from Hong Kong Polytechnic University.
BARRY S. AVED has served as a director of the Company since December 3,
1996. From 1961 until 1986, Mr. Aved held various sales, purchasing and
merchandising positions in apparel and footwear retailers, including The
Limited, Inc. From 1986 until 1989, Mr. Aved was the President of Brooks
Fashion Stores and from 1989 until 1991, he was the President of Ormond
Stores, Inc. From 1991 until 1995, Mr. Aved was the President of Lerner New
York, a division of The Limited, Inc.
JAMES R. MILLER has served as a director of the Company since July 29, 1997.
Mr. Miller is currently the President, Worldwide Theatrical Business
Operations at Warner Brothers and has held numerous positions at that company
for more than the last five years. Before joining Warner Brothers, Mr. Miller
was Associate General Counsel at Paramount Pictures and Columbia Pictures.
Committees of the Board of Directors
The Board of Directors has an Audit Committee, a Compensation Committee and
an Executive Committee, each of which consists of two or more directors who
serve at the discretion of the Board of Directors.
The Audit Committee is chaired by Mr. Aved, and its members are Messrs.
Aved, Guez and Miller. The primary purposes of the Audit Committee are (i) to
review the scope of the audit and all non-audit services to be performed by
the Company's independent certified public accountants and the fees incurred
by the Company in connection therewith, (ii) to review the results of such
audit, including the independent accountants' opinion and letter of comment to
management and management's response thereto, (iii) to review with the
Company's independent accountants the Company's internal accounting
principles, policies and practices and financial reporting, (iv) to make
recommendations regarding the selection of the Company's independent
accountants and (v) to review the Company's quarterly and annual financial
statements prior to public issuance.
5
<PAGE>
The Compensation Committee is chaired by Mr. Miller, and its members are
Messrs. Aved and Miller. The purposes of the Compensation Committee are (i) to
review and recommend to the Board of Directors the salaries, bonuses and
perquisites of the Company's executive officers, (ii) to determine the
individuals to whom, and the terms upon which, awards under the Company's
profit sharing plan and Employee Incentive Plan will be granted, (iii) to make
periodic reports to the Board of Directors as to the status of such plans and
(iv) to review and recommend to the Board of Directors additional compensation
plans.
The Executive Committee is chaired by Mr. Guez, and its members are Messrs.
Aved, Guez and Kay. Subject to the limitations contained in the California
General Corporation Law, the Executive Committee has been granted all of the
authority of the Board of Directors. To date, the Executive Committee has (i)
reviewed all transactions between the Company and any of its affiliates or
related parties, including its executive officers, directors, the family
members of those individuals and any of their affiliates, and (ii) reviewed
the implementation of the Company's vertical integration strategy, geographic
diversification of sourcing and acquisition strategy.
The Board of Directors met six times during fiscal 1998, and the Audit
Committee, the Executive Committee and the Compensation Committee of the Board
of Directors met four, one and two times, respectively, during fiscal 1998.
All of the nominees who were directors of the Company during fiscal 1998
attended at least 75% of the total number of meetings of the Board of
Directors and the total number of meetings held by all committees on which
they served during fiscal 1998.
Procedures for Shareholder Nominations
The Board of Directors does not have a standing nominating committee. The
procedures for nominating directors, other than by the Board of Directors
itself, are set forth in the Bylaws. Nominations for the election of directors
may be made by the Board of Directors or any shareholder entitled to vote in
the election of directors. However, a shareholder may nominate a person for
election as a director at a meeting only if written notice of such
shareholder's intent to make such nomination has been given to the Secretary
of the Company not later than 90 days in advance of such meeting or, if later,
the seventh day following the first public announcement of the date of such
meeting. Each such notice shall set forth: (i) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the shareholder is a holder of record
of stock of the Company entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting and nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC,
had the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (v) the consent of each nominee to serve as a director of the
Company if so elected. In addition, the shareholder making such nomination
shall promptly provide any other information reasonably requested by the
Company. No person shall be eligible for election as a director of the Company
unless nominated in accordance with such procedures. The Chairman of any
meeting of shareholders shall direct that any nomination not made in
accordance with these procedures be disregarded.
Compliance with Reporting Requirements of Section 16
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any person holding ten percent or more of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership to the SEC and to furnish the Company with copies of such reports.
Specific due dates for these reports have been established and the Company is
required to report in this Proxy Statement any failure to file on a timely
basis by such persons. Based solely upon a review of copies of reports filed
with the SEC, each person subject to the reporting requirements of Section
16(a) has filed timely all reports required to be filed in fiscal 1998, except
for the filing of certain reports by Messrs. Aved, Hecht, Yuen and Kristof and
Ms. Reyes and Wasserman with respect to the exercise of certain options
granted under the Employee Incentive Plan or the sale of shares of Common
Stock issued upon exercise of such options. The Company has implemented a
program to ensure timely compliance in the future.
6
<PAGE>
Director Compensation
The Company pays to each director who is not employed by the Company $4,000
per month for attending meetings of the Board of Directors and committees of
the Board of Directors, and reimburses such person for all expenses incurred
by him in his capacity as a director of the Company. In addition, the Chairman
of each committee receives $2,000 per year for such service. The Board of
Directors may modify such compensation in the future. In addition, each
director not employed by the Company, upon joining the Board of Directors,
will receive an option to purchase 20,000 shares of the Common Stock of the
Company and, thereafter, an option to purchase 4,000 shares of Common Stock on
the date of each annual meeting at which such person is reelected to serve as
a director. Such options will have an exercise price equal to the fair market
value of such shares on the date of grant, become exercisable in four equal
annual installments commencing on the first anniversary of the grant thereof,
and expire on the tenth anniversary of the date of grant.
Executive Compensation
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid by the Company to its executive
officers (collectively, the "Named Executives") for the years ended December
31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- --------------------- -------------------------------
Securities
Restricted Underlying
Name and Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary ($) Bonus ($) Compensation ($)(1) Awards ($) SARs (#) Payouts ($) Compensation ($)(4)
- -------------------- ---- ---------- --------- ------------------- ---------- ---------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerard Guez, 1998 950,000 1,000,000 -- -- 666,668(2) -- 50,000
Chairman of the
Board and Chief 1997 700,000 200,000 -- -- -- -- 50,000
Executive Officer... 1996 656,443 450,000 -- -- 100,000(3) -- 50,000
1998 950,000 1,000,000 -- -- 333,332(2) -- 50,000
Todd Kay, 1997 700,000 200,000 -- -- -- -- 50,000
President........... 1996 656,443 450,000 -- -- 100,000(3) -- 50,000
Corazon R. Reyes, 1998 180,000 -- -- -- -- -- 10,000
Executive Vice
President 1997 180,000 16,200 -- -- -- -- 9,500
and Secretary....... 1996 179,039 29,000 -- -- 50,000(3) -- 7,500
Karen S. Wasserman, 1998 400,000 100,000 -- -- -- -- 7,212
Executive Vice
President and 1997 399,692 -- -- -- -- -- 7,500
General
Merchandising
Manager............ 1996 339,808 60,000 -- -- -- -- 7,500
Marshall Gobuty(5)
Vice President--
Men's.............. 1998 317,308 -- -- -- -- -- --
Mark B. Kristof, 1998 165,125 20,000 -- -- -- -- 10,000
Vice President--
Finance and 1997 163,261 16,000 -- -- -- -- 9,500
Chief Financial
Officer............ 1996 152,726 29,600 -- -- -- -- 7,500
Eddy Yuen Tak Yu,
Executive Vice
President--
Sourcing and General 1998 177,738 129,032 -- -- -- -- 8,578
Manager--Tarrant
Company 1997 180,001 97,419 -- -- -- -- 8,308
Limited............. 1996 148,388 129,032 -- -- 60,000(3) -- 6,849
</TABLE>
- -------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances. The
aggregate amount of such personal benefits does not exceed the lesser of
$50,000 or 10% of the total of the annual salary and bonus reported for
the Named Executives.
(2) See "ELECTION OF DIRECTORS--Employment Agreements" and "RATIFICATION OF
EXECUTIVE OPTION GRANTS".
(3) Consists of shares issuable pursuant to options granted under the Employee
Incentive Plan.
(4) Represents the Company's contribution to defined contribution plans or, in
the case of Messrs. Guez and Kay, contributions by the Company to a
deferred compensation plan.
(5) Resigned as of February 23, 1999.
7
<PAGE>
Employment Agreements
Pursuant to an employment contract dated as of January 1, 1998 (the "Guez
Agreement"), Gerard Guez has been employed as the Chairman of the Board and
Chief Executive Officer of the Company. The Guez Agreement provides that Mr.
Guez receive an annual salary of $1,000,000 and, subject to specified
performance targets, an annual bonus of up to $2,000,000 and an option to
purchase up to 666,668 shares of Common Stock. The Guez Agreement expires on
December 31, 2002.
Pursuant to an employment contract dated as of January 1, 1998 (the "Kay
Agreement"), Todd Kay has been employed as the President of the Company. The
Kay Agreement provides that Mr. Kay receive an annual salary of $1,000,000
and, subject to specified performance targets, an annual bonus of up to
$2,000,000 and an option to purchase up to 333,332 shares of Common Stock. The
Kay Agreement expires on December 31, 2002.
Pursuant to an employment contract dated as of November 18, 1994, as amended
(the "Kristof Agreement"), Mark B. Kristof has been employed as the Chief
Financial Officer of the Company. The Kristof Agreement provides that Mr.
Kristof will receive the following compensation: (i) an annual base salary of
$160,000, subject to increase at the Company's sole discretion; (ii) options
to purchase 111,110 shares of Common Stock pursuant to the Employee Incentive
Plan with an exercise price of $4.50 per share (the "Kristof Options"); and
(iii) such other benefits as may be accorded to the Company's other executive
employees. Unless earlier terminated, the Kristof Agreement will continue in
effect for seven years. Under certain circumstances, including a change in
control or termination of the Kristof Agreement by the Company without cause
prior to the expiration thereof, Mr. Kristof will be entitled to receive from
the Company an amount equal to his annual base salary and continuation of his
benefits for a period of twelve months following the termination date and any
unvested stock options held by Mr. Kristof which were scheduled to vest in the
twelve-month period subsequent to the date of termination will vest
immediately.
Incentive Compensation Awards
Pursuant to their employment agreements, Messrs. Guez and Kay each could
receive a 1999 bonus under the Employee Incentive Plan of $2,000,000 in the
event the Company reports a specified amount of pre-tax income and each such
individual satisfies certain performance-based criteria. See "ELECTION OF
DIRECTORS--Employment Agreements" and "--Employee Incentive Plan."
Stock Option Grants
The following table sets forth certain information concerning the grant of
stock options during fiscal 1998 to the Named Executives.
OPTION/SAR GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
-------------------------------------------------- ----------------------
Number of Percent of
Securities Total Options/
Underlying SARs Granted
Options/SARs to Employees Exercise or Expiration
Name Granted in FY 1998 Base Price Date 5% 10%
---- ------------ -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gerard Guez............. 666,668 41.9% $13.50 10/13/08 $5,660,063 $14,343,711
Todd Kay................ 333,332 20.9% $13.50 10/13/08 $2,830,015 $ 7,171,812
</TABLE>
- --------
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the closing sale price per share at the date of
grant and the sum of (A) 1 plus (B) the assumed rate of appreciation of
the Common Stock compounded annually over the term of the option and (ii)
the per share exercise price of the option and (b) the number of shares of
Common Stock underlying the option at December 31, 1998. These amounts
represent certain assumed rates of appreciation only. Actual gains, if
any, on stock option exercises are dependent on a variety of factors,
including market conditions and the price performance of the Common Stock.
There can be no assurance that the rate of appreciation presented in this
table can be achieved.
8
<PAGE>
Option Exercises and Holdings
The following table sets forth certain information with respect to the Named
Executives concerning the exercise of options during fiscal 1998 and
unexercised options held by the Named Executives as of December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at 12/31/98 12/31/98(1)
Acquired Value ------------------------- -------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerard Guez............. -- -- 233,336 533,332 $6,575,079 $14,229,956
Todd Kay................ -- -- 150,000 283,332 $4,387,509 $ 7,662,456
Corazon R. Reyes........ 75,000 $868,292 82,778 42,222 $2,850,425 $11,443,326
Karen S. Wasserman...... 25,000 $299,496 52,778 22,222 $1,860,425 $ 783,326
Mark B. Kristof......... 61,112 $584,655 -- 22,222 -- $ 783,326
Eddy Yuen Tak Yu........ 11,000 $216,722 112,750 48,750 $3,906,938 $11,650,938
</TABLE>
- --------
(1) The value of unexercised "in-the-money" options is the difference between
the closing sale price of the Common Stock on December 31, 1998 ($39.75
per share) and the exercise price of the option, multiplied by the number
of shares subject to the option.
Employee Incentive Plan
For a description of the Employee Incentive Plan, see "AMENDMENT OF EMPLOYEE
INCENTIVE PLAN."
Employee Benefit Plans
In 1994, the Company adopted a Profit Sharing 401(k) Plan (the "Profit
Sharing Plan") which is intended to be qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended. To be eligible, an employee must
have been employed by the Company for at least one year. The Profit Sharing
Plan permits employees who have completed one year of service to defer from 1%
to 15% of their annual compensation into the Profit Sharing Plan. Additional
annual contributions may be made at the discretion of the Company, and a 50%
(100% effective July 1, 1995) matching contribution may be made by the Company
up to a maximum of 6% (5% effective July 1, 1995) of a participating
employee's annual compensation. Contributions made by the Company vest
according to a schedule set forth in the Profit Sharing Plan.
In 1992, Tarrant HK adopted a National Mutual Central Provident Fund (the
"Provident Fund") which has been approved under Section 87A of the Inland
Revenue Ordinance by the Inland Revenue Department of Hong Kong. To be
eligible, an employee must have been employed by Tarrant HK for at least one
year. The Provident Fund permits employees who have completed one year of
service to defer 5% of their annual compensation into the Provident Fund.
Annual matching contributions are made by Tarrant HK. Contributions made by
Tarrant HK vest according to a schedule set forth in the Provident Fund.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an officer
or employee of the Company or its subsidiaries.
9
<PAGE>
Report of the Compensation Committee of the Board of Directors
The Report of the Compensation Committee of the Board of Directors shall not
be deemed filed under the Securities Act of 1993 (the "Securities Act") or
under the Securities Exchange Act of 1934 (the "Exchange Act").
REPORT OF THE COMPENSATION COMMITTEE
Since its inception, the Company has maintained the philosophy that
executive compensation should be competitive with that provided by other
companies in the women's apparel industry to assist the Company in attracting
and retaining qualified executives critical to the Company's long-term
success.
Effective as of January 1, 1998, the Committee approved, and the Company
entered into, employment agreements with Gerard Guez, the Chairman of the
Board and Chief Executive Officer of the Company, and Todd Kay, the President
of the Company, in order to be assured of their continued services and their
experience, knowledge and abilities which have been largely responsible for
the Company's success to date. In determining the salaries and the perquisites
provided in such arrangements, this Committee considered, among other things,
(i) the net sales and net income history of the Company, (ii) the estimated
near and intermediate term results of operations of the Company, (iii) the
position of the Company in its industry, (iv) the expertise of these
individuals, (v) the current sales, net income, growth and capital structure
of the Company and comparable companies, (vi) salaries and perquisites of
executives of comparable companies, (vii) the terms of such employment
agreements, including, but not limited to, the performance requirements for
payment of bonuses and vesting of options, and (viii) the role of such
individuals in developing and implementing the Company's vertical integration
strategy, geographical diversification of sourcing and acquisition strategy
and increasing the Company's net sales and net income in a difficult retail
environment.
The Committee believes that compensation arrangements based upon the
performance of the Company's Common Stock or the operating results of the
Company provide valuable incentives for executive officers to further enhance
the Company's results of operations and, indirectly, the price of the
Company's Common Stock. In support of these objectives, their employment
agreements provide that Messrs. Guez and Kay (i) be granted options to
purchase 666,668 shares and 333,332 shares, respectively, of the Company's
Common Stock at $13.50 per share, the closing sales price of the Common Stock
on the date of grant, and (ii) each be eligible to receive a 1999 bonus
pursuant to the Employee Incentive Plan of up to $2,000,000. Such options will
become exercisable, and such bonuses will be payable, only if the Company
reports a specified amount of pretax income.
Payment of discretionary bonuses in fiscal 1998 was based upon the
satisfaction of individual performance objectives for each executive officer
and performance objectives for the Company as a whole, as well as a subjective
assessment of the individual's actual and potential contribution to the
Company.
Executive officers are permitted to participate in the benefit plans
provided to employees generally, and certain executive officers are provided
long-term disability insurance, reimbursement of tax and accounting fees and
automobile allowances. The incremental cost to the Company of these benefits
provided to the Named Executives was not material in fiscal 1998.
Dated: March 2, 1999 THE COMPENSATION COMMITTEE
James R. Miller, Chairman
Barry S. Aved
10
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on Common Stock with (i) the cumulative
total return of the NASDAQ market index and (ii) the cumulative total return
of companies with the standard industrial classification (SIC) code 5137 over
the period from July 25, 1995 through February 28, 1998. The component
entities of SIC Code 5137 were generated by Research Data Group. All the
entities in SIC Code 5137 were incorporated into the peer group. The graph
assumes an initial investment of $100 on July 25, 1995 and the reinvestment of
dividends through March 1, 1999. The graph is not necessarily indicative of
future price performance.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act or under the Exchange Act, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
[GRAPH APPEARS HERE]
Tarrant Apparel Group (TAGS)
Cumulative Total Return
----------------------------------------
7/25/95 12/95 12/96 12/97 12/98 2/99
TARRANT APPAREL GROUP 100 81 142 174 883 858
PEER GROUP 100 150 216 181 123 141
NASDAQ STOCK MARKET (U.S.) 100 107 131 161 226 237
Certain Relationships and Related Transactions
In 1998, the Company advanced an aggregate of $2.0 million to Azteca
Production International, Inc., a corporation controlled by two brothers of
Mr. Guez, with interest. This advance was repaid within 90 days.
In 1998, the Company advanced to Messrs. Guez, Kay and Kristof an aggregate
of $2,987,000, $1,063,000 and $190,000, respectively, and to Ms. Reyes and
Wasserman an aggregate of $225,000 and $90,000, respectively. Such advances to
Messrs. Guez and Kay bear interest at 7% per annum, and those to Mr. Kristof
and Ms. Reyes and Wasserman bear interest at 5.4% per annum.
The Company leases its principal offices located in Los Angeles, California
and office space in Hong Kong from corporations owned by Messrs. Guez and Kay.
The Company believes the rents on these properties are comparable to
prevailing market rents.
11
<PAGE>
In 1998, a California limited liability company owned by Messrs. Guez and
Kay purchased 2,390,000 shares of the Common Stock of Tag-It Pacific, Inc.
("Tag-It") (or approximately 37% of such Common Stock then outstanding). Tag-
It is a provider of brand identity programs to manufacturers and retailers of
apparel and accessories. On December 1, 1998, Tag-It assumed the
responsibility for managing and sourcing all trim and packaging used in
connection with products manufactured by or on behalf of the Company in
Mexico. The Company transferred $3.0 million of trim inventory to Tag-It in
December 1998. This arrangement is terminable by either the Company or Tag-It
at any time. The Company believes that the terms of this arrangement, which is
subject to the acceptance of the Company's customers, are no less favorable to
the Company than could be obtained from unaffiliated third parties.
On April 1, 1999, the Company purchased a denim mill located in Puebla,
Mexico from a corporation controlled by Kamel Nacif. The purchase price
included 2,000,000 shares of the Company's Common Stock or approximately 12.5%
of the Common Stock issued and outstanding immediately after such transaction.
The Company also has contracted to purchase a turn-key facility being
constructed in Puebla, Mexico by a corporation controlled by Mr. Nacif, which
facility will include a twill mill. The purchase price of this facility will
be the capitalizable cost of construction and equipment installed by the
seller (exclusive of any operating expenses), plus $28 million, payable on the
third anniversary of the purchase. It is anticipated that the Company will
take possession of this facility by the year 2000.
The Company has adopted a policy that future transactions between the
Company and any of its affiliates or related parties, including its executive
officers, directors, the family members of those individuals and any of their
affiliates, must (i) be approved by a majority of the members of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors and (ii) be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Limitation on Liability and Indemnification
The Restated Articles of Incorporation of the Company limit the liability of
the Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its shareholders, except to the extent
otherwise required by the California General Corporation Law. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or rescission.
The Company's Restated Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by applicable law,
including circumstances in which indemnification is otherwise discretionary.
Such provisions may require the Company, among other things, (i) to indemnify
its officers and directors against certain liabilities that may arise by
reason of their status or service as directors or officers provided such
persons acted in good faith and in a manner reasonably believed to be in the
best interests of the Company and, with respect to any criminal action, had no
cause to believe their conduct was unlawful, (ii) to advance the expenses
actually and reasonably incurred by its officers and directors as a result of
any proceeding against them as to which they could be indemnified and (iii) to
obtain directors' and officers' insurance if available on reasonable terms.
There is no action or proceeding pending or, to the knowledge of the Company,
threatened which may result in a claim for indemnification by any director,
officer, employee or agent of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES.
12
<PAGE>
PROPOSAL 2
AMENDMENT OF THE EMPLOYEE INCENTIVE PLAN
General
In May 1995, the Company and its shareholders adopted the 1995 Stock Option
Plan. In May 1997, the shareholders approved an amendment and restatement of
that plan, and it was renamed the Tarrant Apparel Group Employee Incentive
Plan (the "Employee Incentive Plan"). The Employee Incentive Plan currently
provides for the issuance of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
non-qualified stock options, stock appreciation rights, restricted stock and
other performance-based benefits. The purpose of the Employee Incentive Plan
is to enable the Company to attract, retain and motivate officers, directors,
employees and independent contractors by providing for performance-based
benefits.
The Shareholders will be asked at the Meeting to consider and act upon a
proposal to approve an amendment of the Employee Incentive Plan increasing
from 2,600,000 to 3,600,000 the number of shares of the Company's Common Stock
which may be subject to awards granted pursuant thereto. The proposal to amend
the Employee Incentive Plan requires the affirmative vote of a majority of the
shares of Common Stock represented and entitled to vote at the Meeting.
Option Exercises and Holdings
As of March 26, 1999, there were 2,303,097 shares of the Company's Common
Stock subject to outstanding options, 439,588 shares (subject to adjustment to
prevent dilution) available for awards and eight directors and executive
officers and approximately 860 employees and consultants eligible to
participate in the Employee Incentive Plan. For information concerning the
grant of stock options during fiscal 1998 to the Named Executives, the
exercise of stock options during fiscal 1998 by the Named Executives and
unexercised stock options held by the Named Executives as of December 31,
1998, see "ELECTION OF DIRECTORS--Stock Option Grants" and "ELECTION OF
DIRECTORS--Option Exercises and Holdings."
Description of the Plan
Administration. The Employee Incentive Plan is administered by the
Compensation Committee of the Board of Directors. The Committee has the power
to construe and interpret the Employee Incentive Plan and, subject to
provisions of the Employee Incentive Plan, to determine the persons to whom
and the dates on which awards will be granted, the number of shares to be
subject to each award, the times during the term of each award within which
all or a portion of such award may be exercised, the exercise price, the type
of consideration and other terms and conditions of such award. The Committee
shall be composed solely of individuals who are "outside directors" within the
meaning of Section 162(m)(4)(C) of the Code.
Eligibility. Incentive stock options may be granted under the Employee
Incentive Plan only to employees (including directors if they are also
employees) of the Company and its subsidiaries. Employees, directors and
independent contractors are eligible to receive nonstatutory (non-qualified)
stock options, stock appreciation rights, restricted awards, performance
awards and other awards under the Employee Incentive Plan.
No incentive stock option may be granted under the Employee Incentive Plan
to any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any subsidiary of the Company, unless the option exercise price is at least
110% of the fair market value of the stock subject to the option on the date
of the grant and the term of the option does not exceed five years from the
date of the grant. In addition, the aggregate fair market value, determined at
the time of the grant, of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
subsidiaries) may not exceed $100,000. As a result of enactment of Section
162(m) of the Code, and to provide
13
<PAGE>
the Compensation Committee flexibility in structuring awards, the Employee
Incentive Plan states that in the case of stock options and stock appreciation
rights, no person may receive in any year a stock option to purchase more than
100,000 shares or a stock appreciation right measured by more than 100,000
shares.
If awards granted under the Employee Incentive Plan expire, are canceled or
otherwise terminate without being exercised, the Common Stock not purchased
pursuant to the award again becomes available for issuance under the Employee
Incentive Plan.
Terms of Awards. The following is a description of the types of grants and
awards and the permissible terms under the Employee Incentive Plan. Individual
awards may be more restrictive as to any or all of the permissible terms
described below.
Stock options may be granted as "incentive stock options" within the meaning
of Section 422 of the Code or nonstatutory (non-qualified) stock options.
Stock appreciation rights ("SARs") may be granted specifying a period of
time for which increases in share price shall be measured, with the grantee
eligible to receive stock or cash at the end of the period based upon
increases in the share price.
Restricted awards may be granted specifying a period of time (the
"Restriction Period") applicable to the award, which shall be not less than
three (3) years, but may be more than that and may vary at the discretion of
the Committee. Common Stock awarded pursuant to a restricted stock award shall
entitle the holder to enjoy all the shareholder rights during the restriction
period except that certain limitations with respect to dividend distributions
and disposition of the stock shall apply.
Performance awards may be granted specifying a number of performance shares
to be credited to an account on behalf of the recipient, each share of which
is deemed to be the equivalent of one share of Common Stock of the Company.
These awards shall be subject to both time and Company performance objectives
that are specified at the time of the award at the discretion of the
Committee. The value of a performance share in a holder's account at the time
of award or the time of payment shall be the fair market value at any time of
a share of the Common Stock of the Company.
Other awards may be granted under the Employee Incentive Plan that are not
in the categories discussed above because the Employee Incentive Plan provides
the Compensation Committee flexibility in designing compensation programs.
Exercise Price; Payment. The exercise of stock options under the Employee
Incentive Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant and in some cases as
described above may not be less than 110% of fair market value. Similarly,
SARs are based upon the fair market value of a share of Common Stock on the
date of the grant compared with the fair market value of a share at the end of
the measuring period. The sole basis for compensation under these awards is an
increase in the stock's fair market value.
Restricted stock awards are payable in stock upon satisfaction of the
restrictions imposed with respect to the award. The Compensation Committee has
the discretion to pay other awards in cash, in shares of Common Stock, or a
combination of both.
Performance Goals. The Employee Incentive Plan is structured so that the
Compensation Committee may make awards that qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, as that
section was enacted in 1993. However, the Employee Incentive Plan is flexible
so that the Compensation Committee also has the discretion to make awards that
are not described in that section. Section 162(m) provides a limit of
$1,000,000 on deductions for compensation paid to certain corporate executives
on a year-by-year basis. However, "performance-based compensation" is excluded
from that limitation. Whether any particular award under the Employee
Incentive Plan will qualify as "performance-based
14
<PAGE>
compensation" will depend upon the terms of the award and compliance with
certain other procedural requirements under Section 162(m). The Compensation
Committee will take into account the overall tax and business objectives of
the Company in structuring awards under the Employee Incentive Plan.
Term. The maximum term of the Employee Incentive Plan is ten years, except
that the Board of Directors may terminate the Employee Incentive Plan earlier.
The term of each individual award will depend upon the written agreement
between the Company and the grantee setting forth the terms of the awards. In
certain circumstances, an award may remain outstanding for a period that
extends beyond the term of the Employee Incentive Plan or the period of the
grantee's employment.
Adjustments. If there is any change in the stock subject to the Employee
Incentive Plan or subject to any award made under the Employee Incentive Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in kind, stock split, liquidating dividend, combination or
exchange of shares, change in corporate structure or otherwise), the Employee
Incentive Plan and shares outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Employee Incentive Plan and the class, number of shares and price per share of
stock subject to such outstanding options as determined by the Compensation
Committee to be fair and equitable to the holders, the Company and the
shareholders. In addition, the Compensation Committee may also make
adjustments in the number of shares covered by, and the price or other value
of any outstanding awards under the Employee Incentive Plan in the event of a
spin-off or other distribution (other than normal cash dividends) of Company
assets to shareholders.
Amendment. The Board of Directors may amend the Employee Incentive Plan at
any time and from time to time without shareholder approval, except that an
amendment may not, without shareholder approval: (i) increase the number of
shares authorized for issuance under the Employee Incentive Plan except as a
result of an adjustment; (ii) materially modify the requirements as to
eligibility for participation in the Employee Incentive Plan; or (iii)
materially increase the benefits accruing to participants under the Employee
Incentive Plan.
Restrictions on Transfer. Under the Employee Incentive Plan, no award shall
be transferable by a holder other than by laws of descent and distribution.
Option rights shall be exercisable during the holder's lifetime only by the
holder or by his guardian or legal representative.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE EMPLOYEE
INCENTIVE PLAN.
PROPOSAL 3
RATIFICATION OF 1999 EMPLOYEE INCENTIVE AWARDS
Effective as of January 1, 1998, the Compensation Committee approved, and
the Company entered into, employment agreements with Messrs. Guez and Kay
under which they each could receive a 1999 bonus pursuant to the Employee
Incentive Plan of up to $2,000,000 in the event the Company reports a
specified amount of pretax income. For a description of such employment
agreements and the Employee Incentive Plan, see "ELECTION OF DIRECTORS--
Employment Agreements" and "AMENDMENT OF THE EMPLOYEE INCENTIVE PLAN."
The Shareholders will be asked at the Meeting to consider and act upon a
proposal to ratify the grant of such 1999 bonuses. The proposal to ratify the
grant of 1999 bonuses requires the affirmative vote of a majority of the
shares of Common Stock represented and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF 1999
EMPLOYEE INCENTIVE AWARDS.
15
<PAGE>
PROPOSAL 4
RATIFICATION OF EXECUTIVE OPTION GRANTS
Effective as of January 1, 1998, the Compensation Committee approved, and
the Company entered into, employment agreements with Messrs. Guez and Kay
under which they were granted options to purchase 666,668 and 333,332 shares,
respectively, of Common Stock at $13.50 per share, the closing sales price of
the Common Stock on the day of such grant. These options expire on October 13,
2008 and are first exercisable in four equal annual installments on December
31, 1998, 1999, 2000 and 2001, subject to certain performance criteria.
See "ELECTION OF DIRECTORS--Stock Option Grants" and "--Employment
Agreements."
The Shareholders will be asked at the Meeting to consider and act upon a
proposal to ratify the grant of such options. The proposal to ratify the grant
of such options requires the affirmative vote of a majority of the shares of
Common Stock represented and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF EXECUTIVE
OPTION GRANTS.
PROPOSAL 5
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent certified public accountants for the fiscal year ending December
31, 1999. Ernst & Young LLP was retained effective December 29, 1995 for the
examination of the consolidated financial statements of the Company for the
fiscal year ended December 31, 1995. All professional services rendered by
Ernst & Young LLP during fiscal 1998 were furnished at customary rates and
terms. Representatives of Ernst & Young LLP will be invited to be present at
the Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
shareholders.
Shareholders are being asked to ratify the appointment of Ernst & Young LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1999. Ratification of the proposal requires the affirmative vote
of a majority of the shares of Common Stock represented and voting at the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS OF THE COMPANY.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. Any such proposal to be included in the proxy
statement for the Company's 2000 annual meeting of shareholders must be
submitted by a shareholder prior to December 3, 1999, in a form that complies
with applicable regulations. Recently, the SEC amended its rule governing a
company's ability to use discretionary proxy authority with respect to
shareholder proposals which were not submitted by the shareholders in time to
be included in the proxy statement. As a result of that rule change, in the
event a shareholder proposal is not submitted to the Company prior to February
15, 2000, the proxies solicited by the Board of Directors for the 2000 annual
meeting of shareholders will confer authority on the holders of the proxy to
vote the shares in accordance with their best judgment and discretion if the
proposal is presented at the 2000 annual meeting of shareholders without any
discussion of the proposal in the proxy statement for such meeting.
16
<PAGE>
ANNUAL REPORT
The Company's Annual Report of the fiscal year ended December 31, 1998
accompanies or has preceded this Proxy Statement. The Annual Report contains
consolidated financial statements of the Company and its subsidiaries and the
report thereon of Ernst & Young LLP, the Company's independent auditors.
SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE EXCHANGE ACT FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998, BY WRITING TO THE COMPANY AT 3151 EAST WASHINGTON
BOULEVARD, LOS ANGELES, CALIFORNIA 90023, ATTENTION: MARK B. KRISTOF.
OTHER BUSINESS
Management knows of no business which will be presented for consideration at
the Meeting other than as stated in the Notice of Meeting. If, however, other
matters are properly brought before the Meeting, it is the intention of the
Proxyholders to vote the shares represented by the Proxies on such matters in
accordance with the recommendation of the Board of Directors and authority to
do so is included in the Proxy.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated: April 2, 1999
Los Angeles, California
17
<PAGE>
APPENDIX A
REVOCABLE PROXY REVOCABLE PROXY
TARRANT APPAREL GROUP
Annual Meeting of Shareholders . May 3, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of Tarrant Apparel Group (the "Company")
hereby nominates, constitutes and appoints Gerard Guez and Todd Kay, and each
of them, the attorney, agent and proxy of the undersigned, with full power of
substitution, to vote all stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Company (the
"Meeting") to be held at 3151 East Washington Boulevard, Los Angeles,
California 90023, on Monday, May 3, 1999 at 10:00 a.m., and any adjournment
thereof, as fully and with the same force and effect as the undersigned might
or could do if personally thereat, as follows:
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS.
For all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [_] to vote for all nominees listed below [_]
Mark B. Kristof James R. Miller Karen S. Wasserman
</TABLE>
(INSTRUCTIONS: To withhold authority to vote for any one or more nominees
whose name appears above, write that nominee's or nominees' name(s) in the
space provided below)
- -------------------------------------------------------------------------------
2. AMENDMENT OF EMPLOYEE INCENTIVE PLAN. To approve an amendment of the Employee
Incentive Plan increasing from 2,600,000 to 3,600,000 the number of shares of
the Company's Common Stock which may be subject to awards granted pursuant
thereto.
FOR [_] AGAINST [_] ABSTAIN [_]
3. RATIFICATION OF 1999 EMPLOYEE INCENTIVE AWARDS. To ratify the grant of 1999
awards to certain executive officers pursuant to the Employee Incentive Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. RATIFICATION OF STOCK OPTION GRANTS. To ratify the grant of options to pur-
chase an aggregate of 1,000,000 shares of Common Stock to certain executive
officers.
FOR [_] AGAINST [_] ABSTAIN [_]
5. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS. To ratify the
appointment of Ernst & Young LLP as the Company's independent auditors for
the year ending December 31, 1999.
FOR [_] AGAINST [_] ABSTAIN [_]
6. OTHER BUSINESS. In their discretion, the proxyholders are authorized to
transact such other business as properly may come before the Meeting and any
adjournment or adjournments thereof.
FOR [_] AGAINST [_] ABSTAIN [_]
(PLEASE SIGN AND DATE ON REVERSE SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE, "FOR" THE AMENDMENT OF THE EMPLOYEE INCENTIVE PLAN,
"FOR" THE RATIFICATION OF 1999 EMPLOYEE INCENTIVE AWARDS, "FOR" THE
RATIFICATION OF STOCK OPTION GRANTS TO CERTAIN EXECUTIVE OFFICERS AND "FOR"
THE RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED
BY THE PROXYHOLDERS IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF
THE BOARD OF DIRECTORS.
The undersigned hereby ratifies and confirms all that said attorneys and
proxyholders, or either of them, or their substitutes, shall lawfully do or
cause to be done by virtue hereof, and hereby revokes any and all proxies
heretofore given by the undersigned to vote at the Meeting. The undersigned
hereby acknowledges receipt of the Notice of Annual Meeting and the Proxy
Statement accompanying said notice.
Date: _________ ______________________________________________
(Number of Shares)
______________________________________________
(Name of Shareholder, Printed)
______________________________________________
(Signature of Shareholder)
______________________________________________
(Name of Shareholder, Printed)
______________________________________________
(Signature of Shareholder)
(Please date this Proxy and sign your name as
it appears on your stock certificate(s).
Executors, administrators, trustees, etc.
should give their full titles. All joint
owners should sign.)
I (We) do [_] do not [_] expect to attend
the Meeting.
This Proxy will be voted "FOR" the election of all nominees whose names
appear above unless authority to do so is withheld. Unless "AGAINST" or
"ABSTAIN" is indicated on the reverse hereof, this Proxy will be voted, "FOR"
the amendment of the Employee Incentive Plan, "FOR" the ratification of 1999
employee incentive awards, "FOR" the ratification of stock option grants to
certain executive officers and "FOR" the ratification of the appointment of
Ernst & Young LLP as the Company's independent auditors. PLEASE SIGN, DATE AND
RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
