<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Tarrant Apparel Group
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
Tarrant Apparel Group
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 8, 2000
----------------
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 8,
2000 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 2002 and until their successors have been elected and qualified.
The following persons are the Board of Directors' nominees:
<TABLE>
<S> <C> <C>
Gerard Guez Todd Kay Scott Briskie
</TABLE>
2. Ratification of 2000 Employee Incentive Awards. To ratify the grant of
awards for the year 2000 to certain executive officers pursuant to the
Employee Incentive Plan, payable only if the Company reports a specified
amount of pretax income.
3. Ratification of Appointment of Independent Auditors. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 2000.
4. Other Business. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
Only persons who are shareholders of record (the "Shareholders") at the
close of business on April 10, 2000 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 12, 2000.
IT IS IMPORTANT THAT ALL SHAREHOLDERS VOTE. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING IN PERSON. IF YOU DO ATTEND THE MEETING, YOU THEN MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE. IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS,
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
/s/ Gerard Guez
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated: April 10, 2000
Los Angeles, California
<PAGE>
TARRANT APPAREL GROUP
3151 East Washington Boulevard
Los Angeles, California 90023
(323) 780-8250
----------------
PROXY STATEMENT
2000 Annual Meeting of Shareholders
May 8, 2000
----------------
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 2000 annual meeting (the
"Meeting") of the shareholders of the Company to be held on Monday, May 8,
2000, 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
April 10, 2000 (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 12, 2000.
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 2002 and until their successors have been elected and qualified.
The following persons are the Board of Directors' nominees:
<TABLE>
<S> <C> <C>
Gerard Guez Todd Kay Scott Briskie
</TABLE>
2. Ratification of 2000 Employee Incentive Awards. To ratify the grant of
awards for the year 2000 to certain executive officers pursuant to the
Employee Incentive Plan, payable only if the Company reports a specified
amount of pretax income.
3. Ratification of Appointment of Independent Auditors. To ratify the
appointment of Ernst & Young LLP as the Company's independent certified
public accountants for the year ending December 31, 2000.
4. Other Business. To transact such other business as properly may come before
the Meeting or any adjournment thereof.
Cost of Solicitation of Proxies
This Proxy solicitation is made by the Board of Directors of the Company,
and the Company will bear the costs of this solicitation, including the
expense of preparing, assembling, printing and mailing this Proxy Statement
and any other material used in this solicitation of Proxies. The solicitation
of Proxies will be made by mail and may be supplemented by telephone or other
personal contact to be made without special compensation by regular officers
and employees of the Company. If it should appear desirable to do so to ensure
adequate representation at the Meeting, officers and regular employees may
communicate with Shareholders, banks, brokerage houses, custodians, nominees
and others, by telephone, facsimile transmissions, telegraph, or in person to
request that Proxies be furnished. The Company will reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding proxy materials to their principals. The total
estimated cost of the solicitation of Proxies is $6,000.
<PAGE>
Outstanding Securities and Voting Rights; Revocability of Proxies
The authorized capital of the Company consists of (i) 20,000,000 shares of
common stock ("Common Stock"), of which 15,812,315 shares were issued and
outstanding on the Record Date and (ii) 2,000,000 shares of Preferred Stock,
none of which are issued and outstanding on the Record Date. A majority of the
outstanding shares of the Common Stock constitutes a quorum for the conduct of
business at the Meeting. Abstentions will be treated as shares present and
entitled to vote for purposes of determining the presence of a quorum.
Each Shareholder is entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his or her name on the books of the Company
as of the Record Date on any matter submitted to the Shareholders.
The Company's Restated Articles of Incorporation does not authorize
cumulative voting. In the election of directors, the candidates receiving the
highest number of votes will be elected. Each other proposal described herein
requires the affirmative vote of a majority of the outstanding shares of
Common Stock present in person or represented by proxy and entitled to vote at
the Meeting. Accordingly, broker non-votes and abstentions from voting on any
matter, other than the election of directors, will have the effect of a vote
"AGAINST" such matter.
Of the shares of Common Stock outstanding on the Record Date, 8,185,119
shares of Common Stock (or approximately 51.8% of the issued and outstanding
shares of Common Stock) were owned by directors and executive officers of the
Company. Such persons have informed the Company that they will vote "FOR" the
election of the nominees to the Board of Directors identified herein, "FOR"
the ratification of the year 2000 employee incentive awards, and "FOR" the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors, all as described herein.
A Proxy for use at the Meeting is enclosed. The Proxy must be signed and
dated by you or your authorized representative or agent. Telegraphed, cabled
or telecopied Proxies are also valid. You may revoke a Proxy at any time
before it is exercised at the Meeting by submitting a written revocation to
the Secretary of the Company or a duly executed Proxy bearing a later date or
by voting in person at the Meeting.
If you hold Common Stock in "street name" and you fail to instruct your
broker or nominee as to how to vote such Common Stock, your broker or nominee
may, in its discretion, vote such Common Stock "FOR" the election of the Board
of Directors' nominees, "FOR" the ratification of the year 2000 employee
incentive awards, and "FOR" the ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors.
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 ratification of the
year 2000 employee incentive awards 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 December 14, 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.
2
<PAGE>
Security Ownership of Principal Shareholders and Management
The following table sets forth the beneficial ownership of Common Stock as
of the Record Date, by each person known to the Company to be the beneficial
owner of more than five percent of the outstanding shares of Common Stock
(other than depositories), by each executive officer, director and nominee for
director of the Company, and by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percentage
of Beneficial Owner(1) Ownership(2)(3) Owned(3)
---------------------- --------------- ----------
<S> <C> <C>
Gerard Guez................................ 5,970,186(4)(5)(6) 36.7%
Todd Kay................................... 2,833,333(4)(5)(6) 17.6%
Limited Direct Associates, L.P. ........... 1,000,000 6.3%
Lord, Abbett & Co. ........................ 1,833,537 11.6%
Corazon R. Reyes........................... 158,500(5) *
Karen S. Wasserman......................... 72,500(5) *
Eddy Yuen Tak Yu........................... 126,500(5) *
Scott Briskie.............................. 2,000(5) *
Barry Aved................................. 7,000(5) *
Nicolas Berggruen.......................... 11,600(5)(7) *
James Miller............................... 12,000(5) *
All directors and executive officers as a
group (nine persons)...................... 9,193,619(5) 54.8%
</TABLE>
- --------
* Less than 1%.
(1) The address of the directors and executive officers of the Company is 3151
East Washington Boulevard, Los Angeles, California 90023. The address of
Limited Direct Associates, L.P. is c/o The Limited, Inc., Three Limited
Parkway, P.O. Box 16000, Columbus, Ohio 43230. The address of Lord, Abbett
& Co. is 767 Fifth Avenue, New York, New York 10153.
(2) Except as set forth below, the named shareholder has sole voting power and
investment power with respect to the shares listed, subject to community
property laws where applicable.
(3) Shares of Common Stock which the person (or group) has the right to
acquire within 60 days after the Record Date are deemed to be outstanding
in calculating the beneficial ownership and the percentage ownership of
the person (or group) but are not deemed to be outstanding as to any other
person or group.
(4) Gerard Guez and Todd Kay have pledged an aggregate of 5,283,333 shares and
360,000 shares, respectively, to financial institutions to secure the
repayment of loans to such shareholders or corporations controlled by such
shareholders.
(5) Excludes an aggregate of 600,000 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 or
after June 11, 2000.
(6) Includes 103,578 shares held by GKT Investments, LLC, a limited liability
company controlled by Messrs. Guez and Kay.
(7) All such shares held by Alexander Enterprise. Mr. Berggruen is the
investment advisor to Alexander Enterprise. Mr. Berggruen disclaims any
beneficial interest in such shares.
3
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Directors and Executive Officers
The Restated Bylaws of the Company provides 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 seven. 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 2001 (Class I) and the year 2000
(Class II).
Only the members of Class II, Gerard Guez, Todd Kay and Scott Briskie, each
of whom currently is a member 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 2002 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 below, as of the date hereof, no
directorships are held by any director in a company which has a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. Officers serve at the
discretion of the Board of Directors.
The following table sets forth certain information concerning the directors
and executive officers of the Company as of the Record Date.
<TABLE>
<CAPTION>
Name Age Position Class
---- --- -------- -----
<C> <C> <S> <C>
Gerard Guez(1)(3)....... 44 Chairman of the Board, Chief Executive
Officer and Director II
Todd Kay(3)............. 43 Vice Chairman, President and Director II
Corazon R. Reyes........ 56 Executive Vice President and Secretary --
Karen S. Wasserman...... 46 Executive Vice President, General
Merchandising Manager and Director I
Scott Briskie(3)........ 40 Vice President--Finance, Chief
Financial Officer and Director II
Eddy Yuen Tak Yu........ 45 Executive Vice President--Sourcing and
General Manager--Tarrant Company
Limited --
Barry S. Aved(2)........ 56 Director I
James R. Miller(1)(2)... 58 Director I
Nicolas Berggruen(1)(2). 38 Director I
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Executive Committee.
4
<PAGE>
GERARD GUEZ founded the Company in 1988 and has served as its Chairman of
the Board and Chief Executive Officer since its inception. Mr. Guez also
founded Tarrant Company Limited ("Tarrant HK"), the Company's Hong Kong
subsidiary, in 1985, and he has served as its Chairman and Chief Executive
Officer since that date. Prior to founding Tarrant HK, Mr. Guez served as the
President of Sasson Jeans, L.A., Inc., which was a manufacturer and
distributor of denim apparel under the "Sasson" license.
TODD KAY has served as President of the Company from 1988 to September 1999
and from March 2000 to present, and as Vice Chairman since September 7, 1999.
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 Executive Vice President since July 1997. Currently she is responsible for
accounting operations in Mexico. 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.
SCOTT BRISKIE joined the Company as the Vice President--Finance and Chief
Financial Officer in September 1999 and was elected as a director on March 22,
2000. From 1996 until joining the Company, Mr. Briskie represented several
major retail and apparel companies, including The Limited, Inc., on financial
matters as an independent consultant. From 1992 to 1996, he held several
executive positions at The Forgotten Woman, including President and Chief
Executive Officer. During this time, Mr. Briskie managed the company through a
Chapter XI proceeding and a turnaround. Prior to that, he was Controller at
several companies, including Escada (USA) Retail Inc. and Movado Watch Corp.
Mr. Briskie holds a Bachelors Degree in Accounting & Finance from the
University of Colorado. He is a member of the New York Society of CPA's,
Colorado Society of CPA's and the American Institute of CPA's.
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
and as President of the Company from September 7, 1999 until March 24, 2000.
From 1961 until 1986, Mr. Aved held various sales, purchasing and
merchandising positions in apparel and footwear retailers, including The
Limited. 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.
5
<PAGE>
JAMES R. MILLER has served as a director of the Company since July 29, 1997.
Currently Mr. Miller is Chairman and Chief Executive Officer of Bel-Air
Entertainment. Before joining Bel-Air Entertainment, he was President of
Worldwide Theatrical Business Operations for Warner Brothers. He joined Warner
Brothers in 1979, as Vice President, Studio Business Affairs and held various
executive positions with Warner Brothers until 1999. Mr. Miller has a Bachelor
of Arts degree from the Syracuse University College of Arts and Sciences in
1963 and a JD from St. John's Law School in 1966. After graduating from law
school, he practiced law with a New York law firm. In 1971, he joined United
Artists Corporation, and thereafter joined Paramount Pictures and Columbia
Pictures as Associate General Counsel.
NICOLAS BERGGRUEN is a founder and President of Alpha Investment Management,
Inc. In 1988, Mr. Berggruen co-founded the Alpha Group, an investment
management firm. Mr. Berggruen is the President of Alpha Investment
Management, Inc., based in New York and manages in excess of $750 million of
the Alpha Group's assets. Responsibilities include research and analysis of
mergers globally, direct investments and business development. Previously, Mr.
Berggruen was a partner of Jacobson Partners, an industrial buyout firm, after
working with Bass Enterprises. Mr. Berggruen is a graduate of New York
University. He has a Bachelor of Science in Finance and International Business
from New York University in 1981.
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. Berggruen, and its members are Messrs.
Guez, Berggruen 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. On March 22, 2000, the Board of Directors
of the Company, on the recommendation of the Audit Committee, adopted a
written Audit Committee Charter, a copy of which is attached hereto as
Appendix "A."
The Compensation Committee is chaired by Mr. Miller, and its members are
Messrs. Aved, Berggruen 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.
Guez, Kay and Briskie. Subject to the limitations contained in the California
General Corporation Law, the Executive Committee has been granted all of the
authority of the Board of Directors. To date, the Executive Committee has (i)
reviewed all transactions between the Company and any of its affiliates or
related parties, including its executive officers, directors, the family
members of those individuals and any of their affiliates, and (ii) reviewed
the implementation of the Company's vertical integration strategy, geographic
diversification of sourcing and acquisition strategy.
The Board of Directors met four times during fiscal 1999, 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 1999.
All of the nominees who were directors of the Company during fiscal 1999
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 1999.
6
<PAGE>
Procedures for Shareholder Nominations
The Board of Directors does not have a standing nominating committee. The
procedures for nominating directors, other than by the Board of Directors
itself, are set forth in the Bylaws. Nominations for the election of directors
may be made by the Board of Directors or any shareholder entitled to vote in
the election of directors. However, a shareholder may nominate a person for
election as a director at a meeting only if written notice of such
shareholder's intent to make such nomination has been given to the Secretary
of the Company not later than 90 days in advance of such meeting or, if later,
the seventh day following the first public announcement of the date of such
meeting. Each such notice shall set forth: (i) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the shareholder is a holder of record
of stock of the Company entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting and nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (iv) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the SEC,
had the nominee been nominated, or intended to be nominated, by the Board of
Directors; and (v) the consent of each nominee to serve as a director of the
Company if so elected. In addition, the shareholder making such nomination
shall promptly provide any other information reasonably requested by the
Company. No person shall be eligible for election as a director of the Company
unless nominated in accordance with such procedures. The Chairman of any
meeting of shareholders shall direct that any nomination not made in
accordance with these procedures be disregarded.
Compliance with Reporting Requirements of Section 16
Under Section 16(a) of the Exchange Act, the Company's directors, executive
officers and any person holding ten percent or more of the Common Stock are
required to report their ownership of Common Stock and any changes in that
ownership to the SEC and to furnish the Company with copies of such reports.
Specific due dates for these reports have been established and the Company is
required to report in this Proxy Statement any failure to file on a timely
basis by such persons. Based solely upon a review of copies of reports filed
with the SEC, each person subject to the reporting requirements of Section
16(a) has filed timely all reports required to be filed in fiscal 1999, except
as described below. Barry Aved, Mark B. Kristof, Corazon Reyes and Eddy Tak Yu
Yuen inadvertently failed to file a Form 4 for two, two, one and three
transactions, respectively, in March 1999. These transactions were later
reported on Form 5. Scott Briskie and Nicholas Berggruen each inadvertently
failed to timely file a Form 3 upon becoming an officer and director,
respectively. No transactions were required to be reported on Mr. Briskie's
Form 3. Four transactions were required to be reported on Mr. Berggruen's
Form 3 and these transactions were later reported on Form 5. Gerard Guez
inadvertently failed to file a Form 4 for five transactions in October 1999.
These transactions were later reported on Form 5. 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 $2,000 per year for such service. The Board of
Directors may modify such compensation in the future. In addition, each
director not employed by the Company, upon joining the Board of Directors,
will receive an option to purchase 20,000 shares of the Common Stock of the
Company and, thereafter, an option to purchase 4,000 shares of Common Stock on
the date of each annual meeting at which such person is reelected to serve as
a director. Such options will have an exercise price equal to the fair market
value of such shares on the date of grant, become exercisable in four equal
annual installments commencing on the first anniversary of the grant thereof,
and expire on the tenth anniversary of the date of grant.
7
<PAGE>
Executive Compensation
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid by the Company to its executive
officers (collectively, the "Named Executives") for the years ended December
31, 1997, 1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- --------------------- -------------------------------
Securities
Restricted Underlying
Name and Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary ($) Bonus ($) Compensation ($)(1) Awards ($) SARs (#) Payouts ($) Compensation ($)(4)
- -------------------- ---- ---------- --------- ------------------- ---------- ---------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerard Guez, 1999 950,000 -- -- -- -- -- 50,000
Chairman of the 1998 950,000 1,000,000 -- -- 666,668(2) -- 50,000
Board and Chief 1997 700,000 200,000 -- -- 100,000(3) -- 50,000
Executive Officer...
Todd Kay, 1999 950,000 -- -- -- -- -- 50,000
President and Vice 1998 950,000 1,000,000 -- -- 333,332(2) -- 50,000
Chairman............ 1997 700,000 200,000 -- -- -- -- 50,000
Corazon R. Reyes, 1999 180,000 -- -- -- -- -- 8,000
Executive Vice 1998 180,000 -- -- -- -- -- 10,000
President 1997 180,000 16,200 -- -- -- -- 9,500
and Secretary.......
Karen S. Wasserman, 1999 400,000 -- -- -- -- -- 7,500
Executive Vice 1998 399,692 -- -- -- -- -- 7,212
President and 1997 339,808 60,000 -- -- -- -- 7,500
General
Merchandising
Manager.............
Eddy Yuen Tak Yu, 1999 191,729 116,129 -- -- -- -- 8,849
Executive Vice 1998 177,738 129,032 -- -- -- -- 8,578
President-- 1997 180,001 97,419 -- -- -- -- 8,308
Sourcing and General
Manager--Tarrant
Company
Limited.............
Scott Briskie, 1999 57,692 -- 50,000 -- -- -- 2,000
Vice President-- 1998 -- -- -- -- -- -- --
Finance 1997 -- -- -- -- -- -- --
and Chief Financial
Officer(5)..........
Barry S. Aved, 1999 167,115 -- -- -- -- -- 8,000
President(6)........ 1998 -- -- -- -- -- -- --
1997 -- -- -- -- -- -- --
</TABLE>
- -------
(1) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses, including car allowances. The
aggregate amount of such personal benefits does not exceed the lesser of
$50,000 or 10% of the total of the annual salary and bonus reported for
the Named Executives.
(2) See "ELECTION OF DIRECTORS--Employment Agreements" and "ELECTION OF
DIRECTORS--Employee Incentive Plan."
(3) Consists of shares issuable pursuant to options granted under the Employee
Incentive Plan.
(4) Represents the Company's contribution to defined contriribution plans or,
in the case of Messrs. Guez and Kay, contributions by the Company to a
deferred compensation plan.
(5) Mr. Briskie was named Chief Financial Officer as of September 13, 1999.
The above reflects compensation and relocation payments from September 13,
1999 through December 31, 1999.
(6) Mr. Aved served as President from September 7, 1999 to March 24, 2000.
8
<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.
Incentive Compensation Awards
Pursuant to their employment agreements, Messrs. Guez and Kay each could
receive a bonus for the year 2000 under the Employee Incentive Plan of
$2,000,000 in the event the Company reports a specified amount of pre-tax
income and each such individual satisfies certain performance-based criteria.
See "ELECTION OF DIRECTORS--Employment Agreements" and "--Employee Incentive
Plan."
Stock Option Grants
The following table sets forth certain information concerning the grant of
stock options during fiscal 1999 to the Named Executives.
OPTION/SAR GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of Stock
Securities Total Options/ Price Appreciation for Option
Underlying SARs Granted Term(1)
Options/SARs to Employees Exercise or Expiration -----------------------------
Name Granted in FY 1999 Base Price Date 5% 10%
---- ------------ -------------- ----------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Barry S. Aved(2)........ 2,000 0.5% $45.50 05/03/09 $ 57,330 $ 144,690
100,000 25.7% $14.00 09/07/09 $ 882,000 $ 2,226,000
Scott Briskie........... 36,000 9.2% $13.31 09/13/09 $ 301,871 $ 761,864
</TABLE>
- --------
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the closing sale price per share at the date of
grant and the sum of (A) 1 plus (B) the assumed rate of appreciation of
the Common Stock compounded annually over the term of the option and (ii)
the per share exercise price of the option and (b) the number of shares of
Common Stock underlying the option at December 31, 1999. 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.
(2) These options terminated on March 24, 2000 upon Mr. Aved resigning as
President of the Company. He served as President from September 7, 1999 to
March 24, 2000.
9
<PAGE>
Option Exercises and Holdings
The following table sets forth-certain information with respect to the Named
Executives concerning the exercise of options during fiscal 1999 and
unexercised options held by the Named Executives as of December 31, 1999.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at 12/31/99 12/31/99(1)
Acquired Value ------------------------- -------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerard Guez............. -- -- 433,334 333,334 $288,000 $ 0
Todd Kay................ -- -- 266,666 166,666 $288,000 $ 0
Corazon Reyes........... 66,388 $723,765 48,612 10,000 $226,879 $28,800
Karen Wasserman......... 20,000 $396,200 55,000 -- $282,150 --
Scott Briskie........... -- -- -- 36,000 -- $ 0
Eddy Yuen Tak Yu........ 20,000 $706,300 81,500 15,000 $547,695 $43,200
Barry Aved.............. 7,000 $184,830 5,000 112,000 $ 11,300 $13,560
</TABLE>
- --------
(1) The value of unexercised "in-the-money" options is the difference between
the closing sale price of the Common Stock on December 31, 1999 ($9.625
per share) and the exercise price of the option, multiplied by the number
of shares subject to the option.
Employee Incentive Plan
General
In May 1995, the Company and its shareholders adopted the 1995 Stock Option
Plan. In May 1997, the shareholders approved an amendment and restatement of
that plan, and it was renamed the Tarrant Apparel Group Employee Incentive
Plan (the "Employee Incentive Plan"). In April 1999, the shareholders approved
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 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.
Option Exercises and Holdings
As of March 1, 2000 there were 1,868,862 shares of the Company's Common
Stock subject to outstanding options, 733,713 shares (subject to adjustment to
prevent dilution) available for awards and eight directors and executive
officers and approximately 4,366 employees and consultants eligible to
participate in the Employee Incentive Plan. For information concerning the
grant of stock options during fiscal 1999 to the Named Executives, the
exercise of stock options during fiscal 1999 by the Named Executives and
unexercised stock options held by the Named Executives as of December 31,
1999, 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,
10
<PAGE>
subject to provisions of the Employee Incentive Plan, to determine the persons
to whom and the dates on which awards will be granted, the number of shares to
be subject to each award, the times during the term of each award within which
all or a portion of such award may be exercised, the exercise price, the type
of consideration and other terms and conditions of such award. The Committee
shall be composed solely of individuals who are "outside directors" within the
meaning of Section 162(m)(4)(C) of the Code.
Eligibility. Incentive stock options may be granted under the Employee
Incentive Plan only to employees (including directors if they are also
employees) of the Company and its subsidiaries. Employees, directors and
independent contractors are eligible to receive nonstatutory (non-qualified)
stock options, stock appreciation rights, restricted awards, performance
awards and other awards under the Employee Incentive Plan.
No incentive stock option may be granted under the Employee Incentive Plan
to any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any subsidiary of the Company, unless the option exercise price is at least
110% of the fair market value of the stock subject to the option on the date
of the grant and the term of the option does not exceed five years from the
date of the grant. In addition, the aggregate fair market value, determined at
the time of the grant, of the shares of Common Stock with respect to which
incentive stock options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
subsidiaries) may not exceed $100,000. As a result of enactment of Section
162(m) of the Code, and to provide 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.
11
<PAGE>
Exercise Price; Payment. The exercise of stock options under the Employee
Incentive Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant and in some cases as
described above may not be less than 110% of fair market value. Similarly,
SARs are based upon the fair market value of a share of Common Stock on the
date of the grant compared with the fair market value of a share at the end of
the measuring period. The sole basis for compensation under these awards is an
increase in the stock's fair market value.
Restricted stock awards are payable in stock upon satisfaction of the
restrictions imposed with respect to the award. The Compensation Committee has
the discretion to pay other awards in cash, in shares of Common Stock, or a
combination of both.
Performance Goals. The Employee Incentive Plan is structured so that the
Compensation Committee may make awards that qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, as that
section was enacted in 1993. However, the Employee Incentive Plan is flexible
so that the Compensation Committee also has the discretion to make awards that
are not described in that section. Section 162(m) provides a limit of
$1,000,000 on deductions for compensation paid to certain corporate executives
on a year-by-year basis. However, "performance-based compensation" is excluded
from that limitation. Whether any particular award under the Employee
Incentive Plan will qualify as "performance-based compensation" will depend
upon the terms of the award and compliance with certain other procedural
requirements under Section 162(m). The Compensation Committee will take into
account the overall tax and business objectives of the Company in structuring
awards under the Employee Incentive Plan.
Term. The maximum term of the Employee Incentive Plan is ten years, except
that the Board of Directors may terminate the Employee Incentive Plan earlier.
The term of each individual award will depend upon the written agreement
between the Company and the grantee setting forth the terms of the awards. In
certain circumstances, an award may remain outstanding for a period that
extends beyond the term of the Employee Incentive Plan or the period of the
grantee's employment.
Adjustments. If there is any change in the stock subject to the Employee
Incentive Plan or subject to any award made under the Employee Incentive Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in kind, stock split, liquidating dividend, combination or
exchange of shares, change in corporate structure or otherwise), the Employee
Incentive Plan and shares outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Employee Incentive Plan and the class, number of shares and price per share of
stock subject to such outstanding options as determined by the Compensation
Committee to be fair and equitable to the holders, the Company and the
shareholders. In addition, the Compensation Committee may also make
adjustments in the number of shares covered by, and the price or other value
of any outstanding awards under the Employee Incentive Plan in the event of a
spin-off or other distribution (other than normal cash dividends) of Company
assets to shareholders.
Amendment. The Board of Directors may amend the Employee Incentive Plan at
any time and from time to time without shareholder approval, except that an
amendment may not, without shareholder approval: (i) increase the number of
shares authorized for issuance under the Employee Incentive Plan except as a
result of an adjustment; (ii) materially modify the requirements as to
eligibility for participation in the Employee Incentive Plan; or (iii)
materially increase the benefits accruing to participants under the Employee
Incentive Plan.
Restrictions on Transfer. Under the Employee Incentive Plan, no award shall
be transferable by a holder other than by laws of descent and distribution.
Option rights shall be exercisable during the holder's lifetime only by the
holder or by his guardian or legal representative.
Employee Benefit Plans
In 1994, the Company adopted a Profit Sharing 401(k) Plan (the "Profit
Sharing Plan") which is intended to be qualified under Section 401(k) of the
Internal Revenue Code of 1986, as amended. To be eligible, an
12
<PAGE>
employee must have been employed by the Company for at least one year. The
Profit Sharing Plan permits employees who have completed one year of service
to defer from 1% to 15% of their annual compensation into the Profit Sharing
Plan. Additional annual contributions may be made at the discretion of the
Company, and a 50% (100% effective July 1, 1995) matching contribution may be
made by the Company up to a maximum of 6% (5% effective July 1, 1995) of a
participating employee's annual compensation. Contributions made by the
Company vest according to a schedule set forth in the Profit Sharing Plan.
In 1992, Tarrant HK adopted a National Mutual Central Provident Fund (the
"Provident Fund") which has been approved under Section 87A of the Inland
Revenue Ordinance by the Inland Revenue Department of Hong Kong. To be
eligible, an employee must have been employed by Tarrant HK for at least one
year. The Provident Fund permits employees who have completed one year of
service to defer 5% of their annual compensation into the Provident Fund.
Annual matching contributions are made by Tarrant HK. Contributions made by
Tarrant HK vest according to a schedule set forth in the Provident Fund.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is or has been an officer
or employee of the Company or its subsidiaries.
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 Vice
Chairman and 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 as of October 13,
1998 options to purchase 666,668 shares and 333,332 shares, respectively, of
the Company's Common Stock at $13.50 per share, the closing sales price of the
Common Stock on the date of grant, and (ii) each be eligible to receive an
annual bonus pursuant to the Employee Incentive Plan of up to $2,000,000.
13
<PAGE>
Such options have become exercisable. Such bonuses will be payable, only if
the Company reports a specified amount of pretax income. No such bonus was
payable for fiscal 1999.
The Company did not pay any bonus to any Named Executives for 1999 other
than $116, 129 to Eddy Yuen Tak Yu, Executive Vice President, based in Hong
Kong.
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 1999.
Dated: March 22, 2000 THE COMPENSATION COMMITTEE
James R. Miller, Chairman
Barry S. Aved
14
<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 December 31, 1999. 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 December 31, 1999. The graph is not
necessarily indicative of future price performance.
The graph shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing
under the Securities Act or under the Exchange Act, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Measurement Period TARRANT APPAREL PEER NASDAQ STOCK
(Fiscal Year Covered) GROUP GROUP MARKET (U.S.)
- --------------------- --------------- ------- -------------
<S> <C> <C> <C>
Measurement Pt- 7/25/95 $100.00 $100.00 $100.00
FYE 12/95 $ 80.56 $114.07 $106.69
FYE 12/96 $141.67 $ 42.77 $131.26
FYE 12/97 $173.61 $ 31.36 $160.84
FYE 12/98 $883.33 $ 17.68 $226.64
FYE 12/99 $213.89 $ 15.74 $409.45
</TABLE>
Certain Relationships and Related Transactions
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
15
<PAGE>
packaging used in connection with products manufactured by or on behalf of the
Company in Mexico. The Company transferred $3.0 million of trim inventory to
Tag-It in December 1998. This arrangement is terminable by either the Company
or Tag-It at any time. The Company believes that the terms of this
arrangement, which is subject to the acceptance of the Company's customers,
are no less favorable to the Company than could be obtained from unaffiliated
third parties.
On April 1, 1999, the Company purchased a denim mill located in Puebla,
Mexico from a corporation controlled by Kamel Nacif. The purchase price
included 1,724,000 shares of the Company's Common Stock or approximately 10.8%
of the Common Stock issued and outstanding immediately after such transaction.
The Company also has contracted to purchase a turn-key facility being
constructed in Puebla, Mexico by a corporation controlled by Mr. Nacif, which
facility will include a twill mill. The purchase price of this facility will
be the capitalizable cost of construction and equipment installed by the
seller (exclusive of any operating expenses), plus $28 million, payable on the
third anniversary of the purchase. It is anticipated that the Company will
take possession of this facility during 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.
From time to time during fiscal 1999, the Company leased an airplane from
477 Aviation LLC for the purpose of transporting employees of the Company. 477
Aviation LLC is wholly owned by Gerard Guez. In connection with such lease the
Company paid $327,520 to 477 Aviation LLC.
Limitation on Liability and Indemnification
The Restated Articles of Incorporation of the Company limits 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 provides 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.
16
<PAGE>
PROPOSAL 2
RATIFICATION OF 2000 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 an annual 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 "ELECTION OF DIRECTORS--Employee Incentive Plan."
The Shareholders will be asked at the Meeting to consider and act upon a
proposal to ratify the grant of such bonuses for the year 2000, payable only
if the Company reports a specified amount of pretax income. The proposal to
ratify the grant of bonuses for the year 2000 requires the affirmative vote of
a majority of shares of Common Stock represented and entitled to vote at the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF 2000
EMPLOYEE INCENTIVE AWARDS.
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as the Company's
independent certified public accountants for the fiscal year ending December
31, 2000. 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 1999 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, 2000. 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 2001 annual meeting of shareholders must be
submitted by a shareholder prior to December 13, 2000, 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
25, 2001, the proxies solicited by the Board of Directors for the 2001 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 2001 annual meeting of shareholders without any
discussion of the proposal in the proxy statement for such meeting.
17
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ANNUAL REPORT
The Company's Annual Report of the fiscal year ended December 31, 1999
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 SEC
PURSUANT TO THE EXCHANGE ACT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, BY
WRITING TO THE COMPANY AT 3151 EAST WASHINGTON BOULEVARD, LOS ANGELES,
CALIFORNIA 90023, ATTENTION: SCOTT BRISKIE.
OTHER BUSINESS
Management knows of no business which will be presented for consideration at
the Meeting other than as stated in the Notice of Meeting. If, however, other
matters are properly brought before the Meeting, it is the intention of the
Proxyholders to vote the shares represented by the Proxies on such matters in
accordance with the recommendation of the Board of Directors and authority to
do so is included in the Proxy.
By Order of the Board of Directors,
TARRANT APPAREL GROUP
/s/ Gerard Guez
Gerard Guez,
Chairman of the Board and
Chief Executive Officer
Dated: April 10, 2000
Los Angeles, California
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APPENDIX A
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2)
the compliance by the Company with legal and regulatory requirements and (3)
the independence and performance of the Company's internal and external
auditors.
The members of the Audit Committee shall meet the independence and
experience requirements of the Nasdaq Stock Market, Inc. The members of the
Audit Committee shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee
may request any officer or employee of the Company or the Company's outside
counsel or independent auditor to attend a meeting of the Committee or to meet
with any members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management, including
major issues regarding accounting and auditing principles and practices as
well as the adequacy of internal controls that could significantly affect
the Company's financial statements.
3. Review an analysis prepared by management and the independent auditor of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements.
4. Review with management and the independent auditor the Company's quarterly
financial statements prior to the filing of its Form 10-Q.
5. Meet periodically with management to review the Company's major financial
risk exposures and the steps management has taken to monitor and control
such exposures.
6. Review major changes to the Company's auditing and accounting principles
and practices as suggested by the independent auditor, internal auditors
or management.
7. Recommend to the Board the appointment of the independent auditor, which
firm is ultimately accountable to the Audit Committee and the Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding the
auditor's independence consistent with Independence Standards Board
Standard 1, discuss such reports with the auditor and, if so determined by
the Audit Committee, take or recommend that the Board take appropriate
action to oversee the independence of the auditor.
10. Evaluate together with the Board the performance of the independent
auditor and, if so determined by the Audit Committee, recommend that the
Board replace the independent auditor.
11. Review the appointment and replacement of the senior internal auditing
executive, if any.
12. Review any significant reports to management prepared by the internal
auditing department, if any, and management's responses.
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
14. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
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15. Obtain reports from management, the Company's senior internal auditing
executive, if any, and the independent auditor that the Company's
subsidiary/foreign affiliated entities are in conformity with applicable
legal requirements and the Company's code of conduct.
16. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to that letter. Such review should
include:
18. Supervise preparation of the report required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement.
a. Any difficulties encountered in the course of the audit work, including
any restrictions on the scope of activities or access to required
information.
b. Any changes required in the planned scope of the audit.
c. The responsibilities, budget and staffing of the internal audit
department, if any.
19. Advise the Board from time to time with respect to the Company's policies
and procedures regarding compliance with applicable laws and regulations
and with the Company's code of conduct.
20. Meet with the Company's legal counsel to review legal matters that may
have a material impact on the financial statements, the Company's
compliance policies and any material reports or inquiries received from
regulators or governmental agencies.
21. Meet at least annually with the Chief Financial Officer, the senior
internal auditing executive, if any, and the independent auditor in
separate executive sessions.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete
and accurate and are in accordance with generally accepted accounting
principles. This is the responsibility of management and the independent
auditor. Nor is it the duty of the Audit Committee to conduct investigations,
to resolve disagreements, if any, between management and the independent
auditor or to assure compliance with laws and regulations and the Company's
code of conduct.
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<TABLE>
<CAPTION>
<S> <C> <C>
REVOCABLE PROXY TARRANT APPAREL GROUP REVOCABLE PROXY
Annual Meeting of Shareholders, May 8, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of Tarrant Apparel Group (the "Company") hereby nominates, constitutes and appoints Gerald Guez
and Todd Kay, and each of them, the attorney, agent and proxy of the undersigned, with full power of substitution, to vote all stock
of the Company which the undersigned is entitled to vote at the Annual Meeting of Shareholders of the Company (the "Meeting") to be
held at 3151 East Washington Boulevard, Los Angeles, California 90023, on Monday, May 8, 2000 at 10:00 a.m., and any adjournment
thereof, as fully and with the same force and effect as the undersigned might or could do if personally thereat, as follows:
1. ELECTION OF DIRECTORS.
[_] For all nominees listed below (except as [_] WITHHOLD AUTHORITY to vote for all nominees
marked to the contrary below) listed below
Gerald Guez Todd Kay Scott Briskie
INSTRUCTIONS: To withhold authority to vote for any one or more nominees whose name appears above, write that nominee's or
nominee's name(s) in the space provided below)
-----------------------------------------------
2. RATIFICATION OF 2000 EMPLOYEE INCENTIVE AWARDS. To ratify the grant of 2000 awards to certain executive officers pursuant to
the Employee Incentive Plan, payable only if the Company reports a specified amount of pretax income.
FOR [_] AGAINST [_] ABSTAIN [_]
3. 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, 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
4. OTHER BUSINESS. In their discretion, the proxyholders are authorized to transfer such other business as properly may come
before the Meeting and any adjournment or adjournments thereof.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued and to be signed on reverse side.)
</TABLE>
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEES LISTED ABOVE, "FOR" THE RATIFICATION OF 2000 EMPLOYEE INCENTIVE AWARDS,
AND "FOR" THE RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL
BE VOTED BY THE PROXYHOLDERS IN ACCORDANCE WITH THE RECOMMENDATIONS OF A
MAJORITY OF THE BOARD OF DIRECTORS.
The undersigned hereby ratifies and confirms all that said attorneys and
proxyholders, or either of them, or their substitutes, shall lawfully do or
cause to be done by virtue hereof, and hereby revoke 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
Statements accompanying said notion.
I (We) do [_] do not [_] expect to attend the Meeting.
Date:
----------------- ---------------------
(Number of Shares)
------------------------------------------
(Signature)
------------------------------------------
(Signature if held jointly)
(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.)
This Proxy will be voted "FOR" the election of all nominees whose names appear
above unless authority to do so is withheld. Unless "AGAINST" or "ABSTAIN" is
indicated on the reverse hereof, this Proxy will be voted "FOR" the ratification
of 2000 employee incentive awards and "FOR" the ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors. PLEASE SIGN, DATE
AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE PREPAID ENVELOPE
PROVIDED.
