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:
Mark B. Kristof
James R. Miller
Karen S. Wasserman
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.
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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
Gerard Guez,
Dated April 2, 1999 Chairman of the Board and
Los Angeles, California Chief Executive Officer
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<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:
Mark B. Kristof
James R. Miller
Karen S. Wasserman
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.
1
<PAGE>
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,
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 13,836,955 shares were issued and
outstanding on March 15, 1999 and (ii) 2,000,000 shares of Preferred Stock,
none of which are issued and outstanding. 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 March 15, 1999, 8,970,000
shares of Common Stock (or approximately 64.8% 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.
2
<PAGE>
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 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.
3
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
as of March 15, 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............................................ 132,778(6) *
Karen S. Wasserman.......................................... 72,778(6) *
Mark B. Kristof............................................. 42,222 *
Eddy Yuen Tak Yu............................................ 112,750(6) *
Barry S. Aved............................................... 7,000(6) *
James R. Miller............................................. 6,000(6) *
All directors and executive officers as a group (eight persons) 9,656,863(4)(6) 61.9
- --------------
<FN>
* 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.
</FN>
</TABLE>
4
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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.
5
<PAGE>
The following table sets forth certain information concerning the
directors and executive officers of the Company as of the Record Date.
NAME AGE POSITION CLASS
---- --- -------- -----
Gerard Guez (1)(3)........ 43 Chairman of the Board, Chief II
Executive Officer and Director
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
Mark B. Kristof........... 48 Vice President - Finance, Chief
Financial 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
- ------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
6
<PAGE>
GERARD GUEZ founded the Company in 1988 and has served as its Chairman
of the Board and Chief Executive Officer since its inception. Mr. Guez also
founded Tarrant Company Limited ("Tarrant HK"), the Company's Hong Kong
subsidiary, in 1985, and he has served as its Chairman and Chief Executive
Officer since that date. Prior to founding Tarrant HK, Mr. Guez served as the
President of Sasson Jeans, L.A., Inc., which was a manufacturer and
distributor of denim apparel under the "Sasson" license.
TODD KAY has served as President and a director of the Company since
1988. Mr. Kay has also served as a director of Tarrant HK since 1986. Prior
to joining the Company, Mr. Kay was a sales manager for Sasson Jeans, L.A.,
Inc. from 1979 to 1980 and served as President of JAG Beverly Hills, Inc., an
apparel manufacturer, from 1980 to 1985.
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.
7
<PAGE>
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.
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
8
<PAGE>
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
9
<PAGE>
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.
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 $2,000 per year for such
service. The Board of Directors may modify such compensation in the future.
In addition, each director not employed by the Company, upon joining the Board
of Directors, will receive an option to purchase 20,000 shares of the Common
Stock of the Company and, thereafter, an option to purchase 4,000 shares of
Common Stock on the date of each annual meeting at which such person is
reelected to serve as a director. Such options will have an exercise price
equal to the fair market value of such shares on the date of grant, become
exercisable in four equal annual installments commencing on the first
anniversary of the grant thereof, and expire on the tenth anniversary of the
date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by or paid by the Company to its
executive officers (collectively, the "Named Executives") for the year ended
December 31, 1998.
10
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ---------------------- ------------------------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) AWARDS($) SARS(#) PAYOUTS($) SATION($)(4)
- --------------------------------------- ------ --------- -------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerard Guez,
Chairman of the Board and Chief
Executive Officer 1998 950,000 1,000,000 -- -- 666,668(2) -- 50,000
1997 700,000 200,000 -- -- -- -- 50,000
1996 656,443 450,000 -- -- 100,000(3) -- 50,000
Todd Kay,
President 1998 950,000 1,000,000 -- -- 333,332(2) -- 50,000
1997 700,000 200,000 -- -- -- -- 50,000
1996 656,443 450,000 -- -- 100,000(3) -- 50,000
Corazon R. Reyes,
Executive Vice President
and Secretary 1998 180,000 -- -- -- -- -- 10,000
1997 180,000 16,200 -- -- -- -- 9,500
1996 179,039 29,000 -- -- 50,000(3) -- 7,500
Karen S. Wasserman,
Executive Vice President and General
Merchandising Manager 1998 400,000 100,000 -- -- -- -- 7,500
1996 339,808 60,000 -- -- -- -- 7,500
Marshall Gobuty (5)
Vice President-Men's 1998 317,308 -- -- -- -- -- --
Mark B. Kristof,
Vice President-Finance and Chief
Financial Officer 1998 165,125 20,000 -- -- -- -- 10,000
1997 163,261 16,000 -- -- -- -- 9,500
1996 152,726 29,600 -- -- -- -- 7,500
Eddy Yuen Tak Yu,
Executive Vice President - Sourcing
and General Manager - Tarrant
Company Limited 1998 177,738 129,032 -- -- -- -- 8,578
1997 180,001 97,419 -- -- -- -- 8,308
1996 148,388 129,032 -- -- 60,000(3) -- 6,849
- ---------
<FN>
(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.
</FN>
</TABLE>
11
<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."
12
<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information concerning the grant of
stock options during fiscal 1998 to the Named Executives.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR 1998
Individual Grants
-------------------------------------------------------------------------
Percent of Potential Realizable Value
Total at Assumed Annual Rates
Options/ of
Number of SARs Stock Price Appreciation
Securities Granted for Option Term (1)
Underlying to Exercise -----------------------------
Options/SARs Employees or Base Expiration
Name Granted in FY 1998 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
- ----------------
<FN>
(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 appreciate presented in this table can be achieved.
</FN>
</TABLE>
13
<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.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at 12/31/98 at 12/31/98 (1)
------------------------------------- ------------------------------------
Shares
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 $ 1,443,326
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 $ 1,650,938
- -------------
<FN>
(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.
</FN>
</TABLE>
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.
14
<PAGE>
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.
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
15
<PAGE>
(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
16
<PAGE>
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on Common Stock with (i) the cumulative
total return of the NASDAQ market index and (ii) the cumulative total return of
companies with the standard industrial classification (SIC) code 5137 over the
period from July 25, 1995 through February 28, 1998. The component entities of
SIC Code 5137 were generated by Media General Financial Service, Inc. All the
entities in SIC Code 5137 were incorporated into the peer group. The graph
assumes an initial investment of $100 on July 25, 1995 and the reinvestment of
dividends through March 1, 1999. The graph is not necessarily indicative of
future price performance.
17
<PAGE>
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act or under the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG TARRANT APPAREL GROUP, INDUSTRY INDEX AND BROAD MARKET
TARRANT
Measurement Period APPAREL INDUSTRY BROAD
(Fiscal Year Covered) GROUP INDEX MARKET
- - --------------------- ------- -------- ------
Measurement Pt- 7/25/95 $100.00 $100.00 $100.00
FYE 12/31/95 $ 80.86 $ 87.01 $102.74
FYE 12/31/96 $141.67 $ 96.36 $127.67
FYE 12/31/97 $173.62 $ 87.06 $156.17
FYE 12/31/98 $883.00 $123.00 $226.00
FYE 02/28/99 $858.00 $141.00 $237.00
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.
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.
18
<PAGE>
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 12.6% 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 $25 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.
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
19
<PAGE>
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 15, 1999, there were 2,149,162 shares of the Company's Common
Stock subject to outstanding options, 447,838 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
20
<PAGE>
grant. In addition, the aggregate fair market value, determined at the time of
the grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its subsidiaries) may not exceed
$100,000. As a result of enactment of Section 162(m) of the Code, and to provide
the Compensation Committee flexibility in structuring awards, the Employee
Incentive Plan states that in the case of stock options and stock appreciation
rights, no person may receive in any year a stock option to purchase more than
100,000 shares or a stock appreciation right measured by more than 100,000
shares.
If awards granted under the Employee Incentive Plan expire, are canceled
or otherwise terminate without being exercised, the Common Stock not purchased
pursuant to the award again becomes available for issuance under the Employee
Incentive Plan.
TERMS OF AWARDS. The following is a description of the types of grants and
awards and the permissible terms under the Employee Incentive Plan. Individual
awards may be more restrictive as to any or all of the permissible terms
described below.
Stock options may be granted as "incentive stock options" within the
meaning of Section 422 of the Code or nonstatutory (non-qualified) stock
options.
Stock appreciation rights ("SARs") may be granted specifying a period of
time for which increases in share price shall be measured, with the grantee
eligible to receive stock or cash at the end of the period based upon increases
in the share price.
Restricted awards may be granted specifying a period of time (the
"Restriction Period") applicable to the award, which shall be not less than
three (3) years, but may be more than that and may vary at the discretion of the
Committee. Common Stock awarded pursuant to a restricted stock award shall
entitle the holder to enjoy all the shareholder rights during the restriction
period except that certain limitations with respect to dividend distributions
and disposition of the stock shall apply.
Performance awards may be granted specifying a number of performance
shares to be credited to an account on behalf of the recipient, each share of
which is deemed to be the equivalent of one share of Common Stock of the
Company. These awards shall be subject to both time and Company performance
objectives that are specified at the time of the award at the discretion of the
Committee. The value of a performance share in a holder's account at the time of
award or the time of payment shall be the fair market value at any time of a
share of the Common Stock of the Company.
Other awards may be granted under the Employee Incentive Plan that are not
in the categories discussed above because the Employee Incentive Plan provides
the Compensation Committee flexibility in designing compensation programs.
EXERCISE PRICE; PAYMENT. The exercise of stock options under the Employee
Incentive Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant and in some cases as
21
<PAGE>
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 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.
22
<PAGE>
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.
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.
23
<PAGE>
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.
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.
24
<PAGE>
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
25
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FRONT APPENDIX A
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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 Mark B. Kristof, and
each of them, the attorney, agent and proxy of the undersigned, with full power
of substitution, to vote all stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Company (the
"Meeting") to be held at 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:
1. ELECTION OF DIRECTORS.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [ ] listed below [ ]
Mark B. Kristof James R. Miller Karen S. Wasserman
(Instructions: To withhold authority to vote for any one or more nominees
whose name appears above, write that nominee's or nominees' name(s) in the
space provided below)
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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
purchase 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>
REVERSE
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.
<PAGE>
APPENDIX B
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TARRANT APPAREL GROUP
EMPLOYEE INCENTIVE PLAN
Tarrant Apparel Group, a California corporation (the "Company"), by
action of both its Compensation Committee and its Board as a whole, hereby
adopts the Tarrant Apparel Group Employee Incentive Plan (the "Plan") with the
following provisions:
1. Purpose. The purpose of the Plan is to promote and advance the
interests of the Company and its shareholders by enabling the Company and its
Subsidiaries to attract, retain and reward managerial and other key employees,
and to strengthen the mutuality of interests between such employees and the
Company's shareholders. The Plan is designed to meet this intent by offering
performance-based stock and cash incentives and other equity-based incentive
awards, thereby providing a proprietary interest in pursuing the long-term
growth, profitability and financial success of the Company.
2. Definitions. For purposes of this Plan, the following terms shall
have the meanings set forth below:
(a) "Award" or "Awards" means an award or grant made to a
Participant under Sections 6 through 9, inclusive, of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as in
effect from time to time or any successor thereto, together with rules,
regulations and authoritative interpretations promulgated thereunder.
(d) "Committee" means the Compensation Committee of the Board
that is provided for in Section 3 of the Plan.
(e) "Common Stock" means the Common Stock of the Company or
any security of the Company issued in substitution, exchange or lieu thereof.
(f) "Company" means Tarrant Apparel Group, a California
corporation, or a Subsidiary or successor corporation, or any holding company
for Tarrant Apparel Group which is a parent of the Company within the meaning of
Code Section 424(e).
(g) "Date of Grant" means the date the Committee (or the
Board, as the case may be) takes formal action designating that a Participant
shall receive an Award, notwithstanding the date the Participant accepts the
Award, the date the Company and the Participant enter into a written agreement
with respect to the Award, or any other date.
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(h) "Effective Date" means the date the Plan is approved by
the holders of a majority of the shares of Common Stock represented and voting
and entitled to vote at a meeting of the shareholders of the Company or by
written consent of a majority of the outstanding shares of Common Stock,
provided such approval of the shareholders of the Company occurs within twelve
(12) months before or after the Committee and the Board both adopt the Plan.
Awards may be granted prior to the Effective Date, but payment under such Awards
is contingent upon shareholder approval as provided above in this definition. In
the event the Company does not obtain shareholder approval of the Plan, any
Awards granted pursuant to the Plan shall be rescinded automatically.
(i) "'34 Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute.
(j) "Fair Market Value" means on any given date, the closing
price for the Common Stock on such date, or, if the Common Stock was not traded
on such date, on the next preceding day on which the Common Stock was traded,
determined in accordance with the following rules.
(i) If the Common Stock is admitted to trading or listing
on a national securities exchange registered under the '34 Act, the closing
price for any day shall be the last reported sale price regular way, or in the
case no such reported sale takes place on such date, the average of the last
reported bid and ask prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed, or
(ii) If not listed or admitted to trading on any national
securities exchange, the last sale price of the Common Stock on the National
Association of Securities Dealers Automated Quotation National Market System
("NMS") or, in case no such reported sale takes place, the average of the
closing bid and ask prices on such date, or
(iii) If not quoted on the NMS, the average of the closing
bid and ask prices of the Common Stock on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or any comparable system, or
(iv) If the Common Stock is not listed on NASDAQ or any
comparable system, the closing bid and ask prices as furnished by any member of
the National Association of Securities Dealers, Inc., selected from time to time
by the Company for that purpose.
(k) "Participant" means a salaried senior executive of the
Company or a Subsidiary who is granted an Award under the Plan.
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(l) "Performance Award" means an Award granted pursuant to the
provisions of Section 9 of the Plan, the vesting of which is contingent on the
attainment of specified performance criteria.
(m) "Performance Share Grant" means an Award of units
representing shares of Common Stock granted pursuant to the provisions of
Section 8 of the Plan.
(n) "Performance Unit Grant" means an Award of monetary units
granted pursuant to the provisions of Section 8 of the Plan.
(o) "Plan" means this Tarrant Apparel Group Employee Incentive
Plan, as set forth herein and as it may be hereafter amended and from time to
time in effect.
(p) "Restricted Award" means an Award granted pursuant to the
provisions of Section 7 of the Plan.
(q) "Restricted Stock Grant" means an Award of shares of
Common Stock granted pursuant to the provisions of Section 7 of the Plan.
(r) "Restricted Unit Grant" means an Award of units
representing shares of Common Stock granted pursuant to the provisions of
Section 7 of the Plan.
(s) "Stock Appreciation Right" means an Award to benefit from
the appreciation of Common Stock granted pursuant to the provisions of Section 6
of the Plan.
(t) "Subsidiary" means any corporation or entity which is a
subsidiary of the Company within the meaning of Section 424(f) of the Code (or
successor sections).
(u) "Ten Percent Shareholder" means a person who owns (after
taking into account the constructive ownership rules of Section 424(d) of the
Code or successor sections) more than ten percent (10%) of the stock of the
Company.
3. Administration.
(a) The Plan is being established and shall be administered by
the Compensation Committee to be appointed from time to time by the Board. The
Committee shall be comprised solely of not less than two persons who are all
"outside directors" within the meaning of Section 162(m)(4)(C) of the Code and
not less than the minimum number (if any) of members of the Board required by
Rule 16b-3 of the '34 Act (or any successor rule). All Committee members must
also be "disinterested persons" for securities law purposes. Members of the
Committee shall serve at the pleasure of the Board and the Board may from
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time to time remove members from, or add members to, the Committee. No
person who is not an "outside director" within the meaning of Section
162(m)(4)(C) of the Code and a "disinterested person" may serve on the
Committee. Appointment to the Committee of any person who is not an "outside
director" and a "disinterested person" shall automatically be null and void, and
any person on the Committee who ceases to be an "outside director" for purposes
of Section 162(m)(4)(C) of the Code and a "disinterested person" shall
automatically and without further action cease to be a member of the Committee.
(b) A majority of the members of the Committee shall
constitute a quorum for the transaction of business. Action approved in writing
by a majority of the members of the Committee then serving shall be as effective
as if the action had been taken by unanimous vote at a meeting duly called and
held. Two Committee members have signed the original Plan document below
signifying that the Committee, as well as the Board as a whole, has adopted and
established this Plan.
(c) The Committee is authorized to construe and interpret the
Plan, to promulgate, amend, and rescind rules and procedures relating to the
implementation of the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan. Any determination, decision, or
action of the Committee in connection with the construction, interpretation,
administration, or application of the Plan shall be binding upon all
Participants and any person claiming under or through any Participant. Although
the Committee is anticipated to make certain Awards that constitute
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code, the Committee is also expressly authorized to make Awards that do not
constitute "performance-based compensation" within the meaning of that
provision. By way of example, and not by way of limitation, the Committee, in
its sole and absolute discretion, may issue an Award that is not based on a
performance goal, as set forth in (g) below, but is based solely on continued
service to the Company.
(d) The Committee may employ or retain persons other than
members of the Committee to assist the Committee to carry out its
responsibilities under such conditions and limitations as it may prescribe,
except that the Committee may not delegate its authority with regard to
selection for participation of and the granting of Awards to persons subject to
Section 16 of the '34 Act or with regard to any of the duties of the Committee
under Section 162(m) of the Code necessary for awards under this Plan to qualify
as "performance-based compensation" for purposes of Section 162(m)(4)(C) of the
Code.
(e) The Committee is expressly authorized to make such
modifications to the Plan as are necessary to effectuate the intent of the Plan
as a result of any changes in the income tax, accounting, or securities law
treatment of Participants and the Plan.
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<PAGE>
(f) The Company shall effect the granting of Awards under the
Plan in accordance with the determinations made by the Committee, by execution
of instruments in writing in such form as approved by the Committee.
(g) The Committee, in the case of each Award, shall establish
in writing at the time of making the Award the business criterion or criteria
(if any) that must be satisfied for payment pursuant to the Award and the amount
payable upon satisfaction of those standards. Those standards are also referred
to herein as performance goals. Such criterion or criteria (if any) shall be
established prior to the Participant rendering the services to which they relate
and while the outcome is substantially uncertain or at such other time permitted
under Treasury Regulations Section 1.162-27(e)(2). In carrying out these duties,
the Committee shall use objective written standards for establishing both the
performance goal and the amount of compensation such that a third party with
knowledge of the relevant facts would be able to determine whether and to what
extent the goal has been satisfied and the amount of compensation payable. The
Committee shall provide a copy of the document setting forth such standards to
the affected Participant and shall retain such written material in its permanent
books and records.
(h) The Committee may not increase an Award once granted,
although it may grant additional Awards to the same Participant.
(i) The Committee shall keep the Board informed as to its
actions and make available to the Board its books and records. Although the
Compensation Committee has the authority to establish and administer the Plan,
the Board reserves the right at any time to abolish the Committee and administer
the Plan itself.
(j) In the case of remuneration that is intended to qualify as
performance-based compensation for purposes of Code Section 162(m)(4)(C), the
Committee and the Board shall disclose to the shareholders of the Company the
material terms under which such remuneration is to be paid under the Plan, and
shall seek approval of the shareholders by a majority vote in a separate
shareholder vote before payment of such remuneration. For these purposes, the
material terms include the individuals (or class of individuals) eligible to
receive such compensation, a description of the business criterion or criteria
on which the performance goal is based, either the maximum amount of the
compensation to be paid thereunder or the formula used to calculate the amount
of compensation if the performance goal is attained, and such other terms as
required under Code Section 162(m)(4)(C) and the Treasury Regulations thereunder
determined from time to time. The foregoing actions shall be undertaken in
conformity with the rules of Code Section 162(m)(4)(C)(ii) and Treasury
Regulations promulgated thereunder. Such remuneration shall not be payable under
this Plan in the absence of such an approving shareholder vote. In the case of
remuneration that is not intended to qualify as performance-based compensation
under Code Section 162(m)(4)(C), the Committee and the Board shall make such
disclosures to and seek such approval from the shareholders of the Company as
they reasonably determine are required by law.
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<PAGE>
(k) To the extent required under Code Section 162(m)(4)(C),
before any payment of remuneration under this Plan, the Committee must certify
in writing that the performance goals and any other material terms of the Award
were in fact satisfied. Such certification shall be kept with the permanent
books and records of the Committee, and the Committee shall provide the affected
Participant with a copy of such certification.
(l) The Committee shall use its good faith best efforts to
comply with the requirements of Section 162(m)(4)(C) of the Code for Awards that
are intended to qualify under that section as "performance-based compensation,"
but shall have no liability to the Company or any recipient in the event one or
more Awards do not so qualify.
4. Duration of and Common Stock Subject to the Plan.
(a) Term. The Plan shall terminate automatically on the tenth
(10th) anniversary date of the date of adoption of the Plan by the Committee,
the date of adoption of the Plan by the Board, or the tenth (10th) anniversary
date of the date of shareholder approval of the Plan, whichever is earlier
(subject to earlier termination by action of the Board), except with respect to
Awards then outstanding.
(b) Shares of Common Stock Subject to the Plan. The maximum
total number of shares of Common Stock with respect to which aggregate stock
Awards may be granted under the Plan shall be three million six hundred thousand
(3,600,000).
(i) All of the amounts stated in this Paragraph (b) are
subject to adjustment as provided in Section 14 below.
(ii) For the purpose of computing the total number of
shares of Common Stock available for Awards under the Plan, there shall be
counted against the foregoing limitations the number of shares of Common Stock
subject to issuance upon exercise or used for payment or settlement of Awards.
(iii) If any Awards are forfeited, terminated, expire
unexercised, settled or paid in cash in lieu of stock or exchanged for other
Awards, the shares of Common Stock which were theretofore subject to such Awards
shall again be available for Awards under the Plan to the extent of such
forfeiture or expiration of such Awards.
(c) Source of Common Stock. Common Stock which may be issued
under the plan may be either authorized and unissued shares or issued shares
which have been reacquired by the Company. No fractional shares of Common Stock
shall be issued under the Plan.
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<PAGE>
5. Eligibility. Persons eligible for Awards under the Plan shall
consist of salaried senior executives of the Company or its Subsidiaries, who
hold positions of significant responsibilities or whose performance or potential
contribution, in the judgment of the Committee, will benefit the Company.
6. Stock Appreciation Rights. The grant of Stock Appreciation Rights
under the Plan shall be subject to the following terms and conditions.
Furthermore, the Stock Appreciation Rights shall contain such additional terms
and conditions, not inconsistent with the express terms of the Plan, as the
Committee shall deem desirable. The terms of each Stock Appreciation Right
granted shall be set forth in a written agreement between the Company and the
Participant receiving such grant. The terms of such agreements need not be
identical.
(a) Stock Appreciation Rights. A Stock Appreciation Right is
an Award determined by the Committee entitling a Participant to receive an
amount equal to the excess of the Fair Market Value of a share of Common Stock
on a fixed date, which shall be the date concluding a measuring period set by
the Committee upon granting the Stock Appreciation Right, over the Fair Market
Value of a share of Common Stock on the date of grant of the Stock Appreciation
Right, multiplied by the number of shares of Common Stock subject to the Stock
Appreciation Right. No Stock Appreciation Rights granted in any year to any
person may be measured by an amount of shares of Common Stock in excess of one
hundred thousand (100,000) shares, subject to adjustment under Section 14 below.
The foregoing sentence is an annual limitation on grants and not a cumulative
limitation.
(b) Grant. A Stock Appreciation Right may be granted in
addition to or completely independent of any other Award under the Plan. Upon
grant of a Stock Appreciation Right, the Committee shall select and inform the
Participant regarding the number of shares of Common Stock subject to the Stock
Appreciation Right and the date that constitutes the close of the measuring
period.
(c) Measuring Period. A Stock Appreciation Right shall accrue
in value from the date of grant over a time period established by the Committee,
except that in no event shall a Stock Appreciation Right be payable within the
first six (6) months after the date of grant. In the written Stock Appreciation
Right agreement, the Committee may also provide (but is not required to provide)
that a Stock Appreciation Right shall be automatically payable on one or more
specified dates prior to the normal end of the measuring period upon the
occurrence of events selected by the Committee (including, but not limited to, a
Change in Control of the Company as set forth in Section 15 below) that are
beyond the control of the Participant. The Committee may provide (but is not
required to provide) in the Stock Appreciation Right agreement that in the case
of a cash payment such acceleration in payment shall also be subject to
discounting of the payment to reasonably reflect the time value of money using
any reasonable discount rate selected by the Committee in accordance with
Treasury Regulations under Code Section 162(m).
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(d) Form of Payment. Payment pursuant to a Stock Appreciation
Right may be made (i) in cash, (ii) in shares of Common Stock, or (iii) in any
combination of the above, as the Committee shall determine in its sole and
absolute discretion. The Committee may elect to make this determination either
at the time the Stock Appreciation Right is granted, at the time of payment or
at any time in between such dates. However, any Stock Appreciation Right paid
upon or subsequent to the occurrence of a Change in Control (as defined in
Section 15) shall be paid in cash.
7. Restricted Awards. Restricted Awards granted under the Plan may
be in the form of either Restricted Stock Grants or Restricted Unit Grants.
Restricted Awards shall be subject to the following terms and conditions.
Furthermore, the Restricted Awards shall be pursuant to a written agreement
executed both by the Company and the Participant, which agreement shall contain
such additional terms and conditions, not inconsistent with the express
provisions of the Plan, as the Committee shall deem desirable in its sole and
absolute discretion. The terms of such written agreements need not be identical.
(a) Restricted Stock Grants. A Restricted Stock Grant is an
Award of shares of Common Stock transferred to a Participant subject to such
terms and conditions as the Committee deems appropriate, as set forth in
Paragraph (d) below.
(b) Restricted Unit Grants. A Restricted Unit Grant is an
Award of units (with each unit having a value equivalent to one share of Common
Stock) granted to a Participant subject to such terms and conditions as the
Committee deems appropriate, including, without limitation, the requirement that
the Participant forfeit all or a portion of such units upon termination of
employment for specified reasons within a specified period of time, and
restrictions on the sale, assignment, transfer or other disposition of such
units.
(c) Grants of Awards. Restricted Awards may be granted under
the Plan in such form and on such terms and conditions as the Committee may from
time to time approve. Restricted Awards may be granted alone or in addition to
other Awards under the Plan. Subject to the terms of the Plan, the Committee
shall determine the number of Restricted Awards to be granted to a Participant
and the Committee may impose different terms and conditions (including
performance goals) on any particular Restricted Award made to any Participant.
Each Participant receiving a Restricted Stock Grant shall be issued a stock
certificate in respect of such shares of Common Stock. Such certificate shall be
registered in the name of such Participant, shall be accompanied by a stock
power duly executed by such Participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such Award.
The certificate evidencing the shares shall be held in custody by the Company
until the restrictions imposed thereon shall have lapsed or been removed.
(d) Restriction Period. Restricted Awards shall provide that
in order for a Participant to vest in such Awards, the Participant must
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continuously provide services to the Company or its Subsidiaries, subject to
relief for specified reasons, for such period as the Committee may designate at
the time of the Award ("Restriction Period"). If the Committee so provides in
the written agreement with the Participant, a Restricted Award may also be
subject to satisfaction of such performance goals as are set forth in such
agreement. During the Restriction Period, a Participant may not sell, assign,
transfer, pledge, encumber, or otherwise dispose of shares of Common Stock
received under a Restricted Stock Grant. The Committee, in its sole discretion,
may provide for the lapse of restrictions during the Restriction Period upon the
occurrence of events selected by the Committee that are beyond the control of
the Participant (including, but not limited to, a Change in Control of the
Company under Section 15). The Committee may provide (but is not required to
provide) in the written agreement with the recipient that in the case of a cash
payment such acceleration in payment shall also be subject to discounting of the
payment to reasonably reflect the time value of money using any reasonable
discount rate selected by the Committee in accordance with Treasury Regulations
under Code Section 162(m). Upon expiration of the applicable Restriction Period
(or lapse of restrictions during the Restriction Period where the restrictions
lapse in installments or by action of the Committee), the Participant shall be
entitled to receive his or her Restricted Award or portion thereof, as the case
may be.
(e) Payment of Awards. A Participant who receives a Restricted
Stock Grant shall be paid solely by release of the restricted shares at the
termination of the Restriction Period (whether in one payment, in installments
or otherwise). A Participant shall be entitled to receive payment for a
Restricted Unit Grant (or portion thereof) in an amount equal to the aggregate
Fair Market Value of the shares of Common Stock covered by such Award upon the
expiration of the applicable Restriction Period. Payment in settlement of a
Restricted Unit Grant shall be made as soon as practicable following the
conclusion of the specified Restriction Period (i) in cash, (ii) in shares of
Common Stock equal to the number of units granted under the Restricted Unit
Grant with respect to which such payment is made, or (iii) in any combination of
the above, as the Committee shall determine in its sole and absolute discretion.
The Committee may elect to make this determination either at the time the Award
is granted, at the time of payment or at any time in between such dates.
(f) Rights as a Shareholder. A Participant shall have, with
respect to the shares of Common Stock received under a Restricted Stock Grant,
all of the rights of a shareholder of the Company, including the right to vote
the shares, and the right to receive any cash dividends. Such cash dividends
shall be withheld, however, until their release upon lapse of the restrictions
under the Restricted Award. Stock dividends issued with respect to the shares
covered by a Restricted Grant shall be treated as additional shares under the
Restricted Grant and shall be subject to the same restrictions and other terms
and conditions that apply to shares under the Restricted Grant with respect to
which the dividends are issued.
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<PAGE>
8. Performance Awards. Performance Awards granted under the Plan may
be in the form of either Performance Share Grants or Performance Unit Grants.
Performance Awards shall be subject to the terms and conditions set forth below.
Furthermore, the Performance Awards shall be subject to written agreements which
shall contain such additional terms and conditions, not inconsistent with the
express provisions of the Plan, as the Committee shall deem desirable in its
sole and absolute discretion. Such agreements need not be identical.
(a) Performance Share Grants. A Performance Share Grant is an
Award of units (with each unit equivalent in value to one share of Common Stock)
granted to a Participant subject to such terms and conditions as the Committee
deems appropriate, including, without limitation, the requirement that the
Participant forfeit such units (or a portion of such units) in the event certain
performance criteria are not met within a designated period of time.
(b) Performance Unit Grants. A Performance Unit Grant is an
Award of units (with each unit representing such monetary amount as designated
by the Committee) granted to a Participant subject to such terms and conditions
as the Committee deems appropriate, including, without limitation, the
requirement that the Participant forfeit such units (or a portion of such units)
in the event certain performance criteria are not met within a designated period
of time.
(c) Grants of Awards. Performance Awards shall be granted
under the Plan pursuant to written agreements with the Participant in such form
as the Committee may from time to time approve. Performance Awards may be
granted alone or in addition to other Awards under the Plan. Subject to the
terms of the Plan, the Committee shall determine the number of Performance
Awards to be granted to a Participant and the Committee may impose different
terms and conditions on any particular Performance Award made to any
Participant.
(d) Performance Goals and Performance Periods. Performance
Awards shall provide that, in order for a Participant to vest in such Awards,
the Company must achieve certain performance goals ("Performance Goals") over a
designated performance period selected by the Committee ("Performance Period").
The Performance Goals and Performance Period shall be established by the
Committee, in its sole and absolute discretion. The Committee shall establish
Performance Goals for each Performance Period before the commencement of the
Performance Period and while the outcome is substantially uncertain or at such
other time permitted under Treasury Regulations Section 1.162-27(e)(2). The
Committee shall also establish a schedule or schedules for such Performance
Period setting forth the portion of the Performance Award which will be earned
or forfeited based on the degree of achievement of the Performance Goals
actually achieved or exceeded. In setting Performance Goals, the Committee may
use such measures as return on equity, earnings growth, revenue growth,
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comparisons to peer companies, or such other measure or measures of performance
in such manner as it deems appropriate.
(e) Payment of Awards. In the case of a Performance Share
Grant, the Participant shall be entitled to receive payment for each unit earned
in an amount equal to the aggregate Fair Market Value of the shares of Common
Stock covered by such Award as of the end of the Performance Period. In the case
of a Performance Unit Grant, the Participant shall be entitled to receive
payment for each unit earned in an amount equal to the dollar value of each unit
times the number of units earned. The Committee, pursuant to the written
agreement with the Participant, may make such Performance Awards payable in
whole or in part upon the occurrence of events selected by the Committee that
are beyond the control of the Participant (including, but not limited to, a
Change in Control of the Company as set forth in Section 15 below). The
Committee may provide (but is not required to provide) in the written agreement
with the recipient that, in the case of a cash payment, acceleration in payment
of a Performance Award shall also be subject to discounting to reasonably
reflect the time value of money using any reasonable discount rate selected by
the Committee in accordance with Treasury Regulations under Code Section 162(m).
Payment in settlement of a Performance Award shall be made as soon as
practicable following the conclusion of the Performance Period (i) in cash, (ii)
in shares of Common Stock, or (iii) in any combination of the above, as the
Committee may determine in its sole and absolute discretion. The Committee may
elect to make this determination either at the time the Award is granted, at the
time of payment, or at any time in between such dates.
9. Other Stock-Based and Combination Awards.
(a) The Committee may grant other Awards under the Plan
pursuant to which Common Stock is or may in the future be acquired, or Awards
denominated in stock units, including ones valued using measures other than
market value. Such Other Stock-Based Grants may be granted either alone or in
addition to any other type of Award granted under the Plan.
(b) The Committee may also grant Awards under the Plan in
combination with other Awards or in exchange of Awards, or in combination with
or as alternatives to grants or rights under any other employee plan of the
Company, including the plan of any acquired entity.
(c) Subject to the provisions of the Plan, the Committee shall
have authority to determine the individuals to whom and the time or times at
which the Awards shall be made, the number of shares of Common Stock to be
granted or covered pursuant to such Awards, and any and all other conditions
and/or terms of the Awards.
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10. Deferral Elections. The Committee may permit a Participant to
elect to defer his or her receipt of the payment of cash or the delivery of
shares of Common Stock that would otherwise be due to such Participant by virtue
of the exercise, earn out or vesting of an Award made under the Plan. If any
such election is permitted, the Committee shall establish rules and procedures
for such payment deferrals, including the possible (a) payment or crediting of
reasonable interest on such deferred amounts credited in cash, and (b) the
payment or crediting of dividend equivalents in respect of deferrals credited in
units of Common Stock. The Company and the Committee shall not be responsible to
any person in the event that the payment deferral does not result in deferral of
income for tax purposes.
11. Dividend Equivalents. Awards of Stock Appreciation Rights,
Restricted Unit Grants, Performance Share Grants, and other Stock-Based Awards
may, in the sole and absolute discretion of the Committee, earn dividend
equivalents. In respect of any such Award which is outstanding on a dividend
record date for Common Stock, the Participant may be credited with an amount
equal to the amount of cash or stock dividends that would have been paid on the
shares of Common Stock covered by such Award had such shares been issued and
outstanding on such dividend record date. The Committee shall establish such
rules and procedures governing the crediting of dividend equivalents, including
the timing, form of payment, and payment contingencies of such dividend
equivalents, as it deems appropriate or necessary.
12. Termination of Employment. The terms and conditions under which
an Award may be exercised after a Participant's termination of employment shall
be determined by the Committee and reflected in the written agreement with the
Participant concerning the Award, except that in the event a Participant's
employment with the Company or a Subsidiary terminates for any reason within six
(6) months of the date of grant of any Award held by the Participant, the Award
shall expire as of the date of such termination of employment and the
Participant and the Participant's legal representative or beneficiary shall
forfeit any and all rights pertaining to such Award.
13. Non-transferability of Awards. No Award under the Plan, and no
rights or interest therein, shall be assignable or transferable by a Participant
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order within the meaning of the Code. During the
lifetime of a Participant, Awards are exercisable only by, and payments in
settlement of Awards will be payable only to, the Participant or his or her
legal representative.
14. Adjustments Upon Changes in Capitalization, Etc.
(a) The existence of the Plan and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Board or the
shareholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger or consolidation of the Company, any
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issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Company's Common Stock or the rights thereof, the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding.
(b) In the event of any change in capitalization affecting the
Common Stock of the Company after the Effective Date, such as a stock dividend,
stock split, recapitalization, merger, consolidation, split-up, combination,
exchange of shares, other form of reorganization, or any other change affecting
the Common Stock, such proportionate adjustments, if any, as the Board in its
discretion may deem appropriate to reflect such change shall be made with
respect to (i) the aggregate number of shares of Common Stock for which Awards
in respect thereof may be granted under the Plan, (ii) the maximum number of
shares of Common Stock which may be sold or awarded to any Participant, (iii)
the number of shares of Common Stock covered by each outstanding Award, and (iv)
the price per share in respect of outstanding Awards.
(c) The Committee may also make such adjustments in the number
of shares covered by, and the price or other value of any outstanding Awards in
the event of a spin-off or other distribution (other than normal cash dividends)
of Company assets to shareholders. In the event that another corporation or
business entity is being acquired by the Company, and the Company agrees to
assume outstanding employee stock appreciation rights and/or the obligation to
make future grants of or rights to employees of the acquired entity, the
aggregate number of shares of Common Stock available for Awards under Section 4
of the Plan may be increased accordingly.
15. Change in Control.
(a) In the event of a Change in Control (as defined in
Paragraph (b) below) of the Company, and except as otherwise provided in Award
agreements:
(i) All Stock Appreciation Rights then outstanding
shall become fully exercisable as of the date of the Change in Control (and
shall terminate at such time as specified in the Award agreement);
(ii) All restrictions and conditions of all
Restricted Stock
Grants and Restricted Unit Grants then outstanding shall be deemed satisfied as
of the date of the Change in Control; and
(iii) All Performance Share Grants and Performance
Unit Grants shall be deemed to have been fully earned as of the date of the
Change in Control;
subject to the limitation that any Award which has been outstanding less than
six (6) months on the date of the Change in Control shall not be afforded such
treatment.
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(b) A "Change in Control" shall be deemed to have occurred
upon the occurrence of any one (or more) of the following events:
(i) Any person, including a group as defined in
Section 13(d)(3) of the '34 Act, becomes the beneficial owner of shares of the
Company with respect to which 25% or more of the total number of votes for the
election of the Board may be cast;
(ii) As a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the foregoing, persons who were
directors of the Company just prior to such event shall cease to constitute a
majority of the Board;
(iii) The shareholders of the Company shall approve an
agreement providing either for a transaction in which the Company will cease to
be an independent publicly owned corporation or for a sale or other disposition
of all or substantially all the assets of the Company; or
(iv) A tender offer or exchange offer is made for
shares of
the Company's Common Stock (other than one made by the Company) and shares of
Common Stock are acquired thereunder.
(v) Formation of a holding company for the Company
in which the shareholdings of the holding company after its formation are
substantially the same as for the Company prior to the holding company formation
does not constitute a Change in Control for purposes of this Plan.
(c) In the event that any payment under this Plan (alone or in
conjunction with other payments) would otherwise constitute an "excess parachute
payment" under Section 280G of the Code (in the sole judgment of the Company),
such payment shall be reduced or eliminated to the extent the Company determines
necessary to avoid deduction disallowance under Section 280G of the Code or the
imposition of excise tax under Section 4999 of the Code. The Company may consult
with a Participant regarding the application of Section 280G and/or Section 4999
to payments otherwise due to such Participant under the Plan, but the judgment
of the Company as to applicability of those provisions, the degree to which a
payment must be reduced to avoid those provisions, and which Awards shall be
reduced, is final. The Compensation Committee shall act on behalf of the Company
in interpreting and administering this limitation.
16. Amendment and Termination. Without further approval of the
shareholders, the Board may at any time terminate the Plan, or may amend it from
time to time in such respects as the Board may deem advisable. However, the
Board may not, without approval of the shareholders, make any amendment which
would (a) increase the aggregate number of shares of Common Stock which may be
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issued under the Plan (except for adjustments pursuant to Section 14 of the
Plan), (b) materially modify the requirements as to eligibility for
participation in the Plan, or (c) materially increase the benefits accruing to
Participants under the Plan. Notwithstanding the above, the Board may amend the
Plan to take into account changes in applicable securities laws, federal income
tax laws and other applicable laws. Further, should the provisions of Rule
16b-3, or any successor rule, under the '34 Act be amended, the Board may amend
the Plan in accordance with any modifications to that rule without the need for
shareholder approval. Notwithstanding the foregoing, the Plan may not be amended
more than once every six months other than to comply with the changes in the
Code or the Employee Retirement Income Security Act of 1974 ("ERISA").
17. Miscellaneous Matters.
(a) Tax Withholding. The Company shall have the right to
deduct from any payment, including the delivery of shares, made under the Plan
any federal, state, or local taxes of any kind required by law to be withheld
with respect to such payments or to take such other action as may be necessary
in the opinion of the Company to satisfy all obligation for the payment of such
taxes. If Common Stock is used to satisfy tax withholding, such stock shall be
valued based on the Fair Market Value when the tax withholding is required to be
made.
(b) No Right to Employment. Neither the adoption of the Plan
nor the granting of any Award shall confer upon any employee of the Company or
any Subsidiary any right to continued employment with the Company or any
Subsidiary, as the case may be, nor shall it interfere in any way with the right
of the Company or a Subsidiary to terminate the employment of any of its
employees at any time, with or without cause.
(c) Unfunded Plan. The Plan shall be unfunded and the Company
shall not be required to segregate any assets that may at any time be
represented by Awards under the Plan. Any liability of the Company to any person
with respect to any Award under the Plan shall be based solely upon any written
contractual obligations that may be effected pursuant to the Plan. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company.
(d) Annulment of Awards. The grant of any Award under the Plan
payable in cash is provisional until cash is paid in settlement thereof. The
grant of any Award payable in Common Stock is provisional until the Participant
becomes entitled to the certificate in settlement thereof. Payment under any
Awards granted pursuant to the Plan is wholly contingent upon shareholder
approval of the Plan. Where approval for an award sought pursuant to Section
162(m)(4)(C)(ii) is not granted by the Company's shareholders, the Award shall
be annulled automatically. In the event the employment of a Participant is
terminated for cause (as defined below), any Award which is provisional shall be
annulled as of the date of such termination for cause. For purposes of the Plan,
the term "terminated for cause" means any discharge because of personal
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dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, continuing intentional or habitual failure to perform stated duties,
violation of any law (other than minor traffic violations or similar misdemeanor
offenses not involving moral turpitude), or rule or regulation adopted by the
Office of Thrift Supervision, California Department of Savings and Loan or
Federal Deposit Insurance Corporation, or material breach of any provision of an
employment agreement with the Company.
(e) Other Company Benefit and Compensation Programs. Payments
and other benefits received by a Participant under an Award made pursuant to the
Plan shall not be deemed a part of a Participant's regular, recurring
compensation for purposes of the termination indemnity or severance pay law of
any state. Furthermore, such benefits shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company or a Subsidiary unless expressly
so provided by such other plan or arrangement, or except where the Committee
expressly determines that inclusion of an Award or portion of an Award should be
included. Awards under the Plan may be made in combination with or in addition
to, or as alternatives to, grants, awards or payments under any other Company or
Subsidiary plans. The Company or any Subsidiary may adopt such other
compensation programs and additional compensation arrangements (in addition to
this Plan) as it deems necessary to attract, retain, and reward employees for
their service with the Company and its Subsidiaries.
(f) Securities Law Restrictions. No shares of Common Stock
shall be issued under the Plan unless counsel for the Company shall be satisfied
that such issuance will be in compliance with applicable federal and state
securities laws. Certificates for shares of Common Stock delivered under the
Plan may be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law. The Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(g) Award Agreement. Each Participant receiving an Award under
the Plan shall enter into a written agreement with the Company in a form
specified by the Committee agreeing to the terms and conditions of the Award and
such related matters as the Committee shall, in its sole and absolute
discretion, determine.
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(h) Costs of Plan. The costs and expenses of administering the
Plan shall be borne by the Company.
(i) Governing Law. The Plan and all actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
California.
TARRANT APPAREL GROUP,
a California Corporation
Date: May 2, 1997 By: /s/ Gerard Guez
-----------------------------------------
Gerard Guez,
Chairman of the Board of Directors
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