As filed with the Securities and Exchange Commission on November 13, 2000
Registration No. 333-
------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------
TARRANT APPAREL GROUP
(Exact name of registrant as specified in its charter)
California 95-4181026
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3151 East Washington Boulevard 90023
Los Angeles, California (Zip code)
(Address of principal executive offices)
--------
EMPLOYEE INCENTIVE PLAN
(Full title of the plan)
----------
SCOTT BRISKIE
Vice President-Finance
and Chief Financial Officer
Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
(Name and address of agent for service)
(323) 780-8250
(Telephone number, including area code, of agent for service)
Copy to:
PETER M. MENARD, ESQ.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor
Los Angeles, California 90071
(213) 617-5483
CALCULATION OF REGISTRATION FEE
================================================================================
Proposed Proposed
Amount maximum maximum Amount of
Title of securities to be offering price aggregate registration
to be registered registered(1) per share(2) offering price fee (3)
--------------------------------------------------------------------------------
Common Stock 3,600,000 $5.9375 $21,375,000 $3,350
================================================================================
(1) This Registration Statement covers, in addition to the number of shares of
Common Stock stated above, such indeterminate number of shares of Common
Stock as may be issued upon exercise of options granted under the Employee
Incentive Plan as a result of the adjustment provisions thereof.
(2) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457 based upon the average of the high
and low prices of the Common Stock as reported on the Nasdaq National
Market on November 2, 2000.
(3) Pursuant to Instruction E to Form S-8, the registration fee does not
include $2,293 with respect to 1,600,000 shares previously registered
pursuant to the predecessor plan (Registration No. 333-3448) for which a
registration fee previously has been paid.
================================================================================
This Registration Statement Includes a Total of 53 Pages.
Exhibit Index Appears on Page II-4.
Page 1 of 53
<PAGE>
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The document(s) containing the information specified in Part I of
Form of S-8 will be sent or given to participants in the Employee Incentive Plan
(the "Plan") of Tarrant Apparel Group, a California corporation (the
"Registrant"), as specified in Rule 428(b)(1) promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"). Such document(s) are not being filed with the
Commission either as part of this Registration Statement or as prospectuses or
prospectus supplements pursuant to Rule 424 in accordance with the Note to Part
I of Form S-8. These documents and the documents incorporated by reference into
this Registration Statement pursuant to Item 3 of Part II of Form S-8, taken
together, constitute a prospectus that meets the requirements of Section 10(a)
of the Securities Act.
I-1
Page 2 of 53
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
---------------------------------------
The following documents previously filed by the Registrant with the
Commission are incorporated in this Registration Statement by reference:
(a) The Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999;
(b) All other reports filed by the Registrant pursuant to Sections
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since the end of the fiscal year ended December 31, 1999; and
(c) The description of the Common Stock of the Registrant contained
in the Registrant's Registration Statement on Form 8-A, including any amendment
or report filed for the purpose of updating such description.
All documents filed by the Registrant pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents.
Any statement made in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Registration Statement to the extent that a statement
contained herein or in any other subsequently filed document which is also
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
Item 4. Description of Securities.
-------------------------
Not applicable.
Item 5. Interests of Named Experts and Counsel.
--------------------------------------
Not applicable.
Item 6. Indemnification of Directors and Officers.
-----------------------------------------
Section 204 of the General Corporation Law of the State of
California (the "California Law") permits the limitation of the personal
liability of a director for monetary damages in an action brought by or in the
right of the corporation for breach of a director's duties to the corporation
and its shareholders under certain conditions and subject to certain
limitations.
Section 317 of the California Law (i) permits indemnification of
directors, officers, employees and other agents of the corporation under certain
conditions and subject to certain limitations and (ii) provides that the
corporation has the power to purchase and maintain insurance on behalf of its
directors, officers, employees and other agents against any liability asserted
against or incurred by them in such capacity or arising out of their status as
such.
II-1
Page 3 of 53
<PAGE>
Article Seven of the Restated Articles of Incorporation of the
Registrant provides as follows:
SEVEN: The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest
extent permissible under California law.
Article Eight of the Restated Articles of Incorporation of the
Registrant provides as follows:
EIGHT: This corporation is authorized to indemnify the directors
and officers of this corporation to the fullest extent
permissible under California law.
Section 5.05 of the Bylaws of the Registrant provides as follows:
Section 5.05. Indemnification and Insurance.
------------ -----------------------------
(a) Right to Indemnification. Each person who was or is made a
party to or is threatened to be made a party to or is involuntarily
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he or she, or a person of whom he or she is
the legal representative, is or was a director of officer of the
corporation or is or was serving (during such person's tenure as
director or officer) at the request of the corporation, any other
corporation, partnership, joint venture, trust or other enterprise
in any capacity, whether the basis of a Proceeding is an alleged
action in an official capacity as a director or officer or in any
other capacity while serving as a director or officer, shall be
indemnified and held harmless by the corporation to the fullest
extent authorized by California Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the corporation to provide
broader indemnification rights than said law permitted the
corporation to provide prior to such amendment), against all
expenses, liability and loss (including attorneys' fees, judgments,
fines, or penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The
right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the
corporation the expenses incurred in defending a Proceeding in
advance of the final disposition; provided, however, that, if
California Law requires the payment of such expenses in advance of
the final disposition of a Proceeding shall be made only upon
receipt by the corporation of an undertaking by or on behalf of such
director or officer to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. No
amendment to or repeal of this Section 5.05 shall apply to or have
any effect on any right to indemnification provided hereunder with
respect to any acts or omissions occurring prior to such amendment
or repeal.
(b) Right of Claimant to Bring Suit. If a claim for indemnity
under paragraph (a) of this Section is not paid in full by the
corporation within ninety (90) days after a written claim has been
received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall
also be entitled to be paid the expense of prosecuting such claim
including reasonable attorneys' fees incurred in connection
therewith. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending
a Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct
which make it permissible under California Law for the corporation
to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the
failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that
II-2
Page 4 of 53
<PAGE>
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in California Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal
counsel, or its shareholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The rights conferred in this
Section shall not be exclusive of any other rights which any
director, officer, employee or agent may have or hereafter acquire
under any statute, provision of the Restated Articles of
Incorporation, bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, to the extent the additional
rights to indemnification are authorized in the Restated Articles of
Incorporation of the corporation.
(d) Insurance. In furtherance and not in limitation of the
powers conferred by statute:
(1) the corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the
corporation would have the power to indemnify the person against
that expense, liability or loss under California Law.
(2) the corporation may create a trust fund, grant a
security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and/or other similar
arrangements), as well as enter into contracts providing
indemnification to the full extent authorized or permitted by law
and including as part thereof provisions with respect to any or all
of the foregoing to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or
elsewhere.
(e) Indemnification of Employees and Agents of the Corporation
Corporation. The corporation may, to the extent authorized from time
to time by the Board of Directors, grant rights to indemnification,
including the right to be paid by the corporation the expenses
incurred in defending a Proceeding in advance of its final
disposition, to any employee or agent of the corporation to the
fullest extent of the provisions of this Section or otherwise with
respect to the indemnification and advancement of expenses of
directors and officers of the corporation.
(f) Amendment by Shareholders. Any action by the shareholders
with respect to any amendment to or the elimination of all or any
part of this Article V, Section 5.05, shall require approval by the
holders of 66-2/3% of the outstanding shares of the corporation.
The Registrant has entered into indemnification agreements with
certain of its directors and executive officers which require the Registrant to
indemnify such persons to the fullest extent permitted by applicable law.
The Registrant maintains an insurance policy pursuant to which the
directors and officers of the Registrant are insured, within the limits and
subject to the limitations of the policy, against certain expenses in connection
with the defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of their being or
having been such directors and officers.
Item 7. Exemption from Registration Claimed.
-----------------------------------
Not applicable.
II-3
Page 5 of 53
<PAGE>
Item 8. Exhibits.
--------
Exhibit
Number Description
------ -----------
3.1 Restated Articles of Incorporation of the Registrant(1)
3.2 Restated Bylaws of the Registrant(1)
5.1 Opinion of Sheppard, Mullin, Richter & Hampton LLP
23.1 Consent of Sheppard, Mullin, Richter & Hampton LLP
(see Exhibit 5.1)
23.2 Consent of Independent Auditors (Ernst & Young LLP)
24.1 Power of Attorney (See page II-6)
99.1 Employee Incentive Plan
99.2 Form of Incentive Stock Option Agreement
99.3 Form of Non-Qualified Stock Option Agreement
Item 9. Undertakings.
------------
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this Registration
Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
--------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on May 4, 1995 (File No.
33-91874).
II-4
Page 6 of 53
<PAGE>
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-5
Page 7 of 53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on this tenth day
of November, 2000.
TARRANT APPAREL GROUP
By /S/ Scott Briskie
________________________________________
Scott Briskie,
Vice President-Finance and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Gerard Guez and Scott Briskie his
true and lawful attorney-in-fact and agent, each with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent with full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ Gerard Guez Chairman of the Board, Chief Executive November 10, 2000
_____________________________ Officer and Director (Principal Executive
Gerard Guez Officer)
/S/ Todd Kay Vice Chairman, President and Director November 10, 2000
_____________________________
Todd Kay
/S/ Barry S. Aved Director November 10, 2000
_____________________________
Barry S. Aved
/S/ Scott Briskie Vice President - Finance, Chief Financial November 10, 2000
_____________________________ Officer (Principal Financial and Accounting
Scott Briskie Officer) and Director
/S/ Nicolas Berggruen Director November 10, 2000
_____________________________
Nicolas Berggruen
/S/ James R. Miller Director November 10, 2000
_____________________________
James R. Miller
/S/ Karen S. Wasserman Executive Vice President, General November 10, 2000
_____________________________ Merchandising Manager and Director
Karen S. Wasserman
</TABLE>
II-6
Page 8 of 53
<PAGE>
EXHIBITS
TO
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
TARRANT APPAREL GROUP
Page 9 of 53
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
------ ----------- -----------
3.1 Restated Articles of Incorporation of the Registrant(1) __
3.2 Restated Bylaws of the Registrant(1) __
5.1 Opinion of Sheppard, Mullin, Richter & Hampton LLP 11
23.1 Consent of Sheppard, Mullin, Richter & Hampton LLP
(see Exhibit 5.1) __
23.2 Consent of Independent Auditors (Ernst & Young LLP) 15
24.1 Power of Attorney (See page II-6) __
99.1 Employee Incentive Plan 17
99.2 Form of Incentive Stock Option Agreement 39
99.3 Form of Non-Qualified Stock Option Agreement 47
--------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on May 4, 1995 (File No.
33-91874).
Page 10 of 53
<PAGE>
EXHIBIT 5.1
Opinion of Sheppard, Mullin, Richter & Hampton LLP
Page 11 of 53
<PAGE>
Exhibit 5.1
-----------
November 10, 2000
Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
Re: Registration Statement on Form S-8
----------------------------------
Gentlemen:
At your request, we have examined the Registration Statement on Form
S-8 (the "Registration Statement") to be filed by Tarrant Apparel Group, a
California corporation (the "Company"), with the Securities and Exchange
Commission (the "SEC") in connection with the registration under the Securities
Act of 1933, as amended (the "Securities Act"), of 3,600,000 shares of the
Company's common stock (the "Common Stock"), that may be issued in the aggregate
pursuant to awards granted under the Company's Employee Incentive Plan (the
"Plan").
In rendering this opinion, we have examined only the following
documents:
1. The Restated Articles of Incorporation of the Company, as
certified by the California Secretary of State as of November
8, 2000;
2. The Bylaws of the Company, as certified by the Secretary of the
Company as of November 10, 2000;
3. The Plan;
4. The forms of Incentive Stock Option Agreement and Non-Qualified
Stock Option Agreement (collectively the "Agreements") to be
used in connection with the Plan;
Page 12 of 53
<PAGE>
Tarrant Apparel Group
November 10, 2000
Page 2
5. Resolutions, adopted by the Company's Board of Directors as of
January 13, 1997, April 2, 1999 and July 17, 2000, and by the
shareholders of the Company as of May 2, 1997 and May 3, 1999,
pertaining to the adoption of the Plan, the Agreements and the
Registration Statement; and
6. The Registration Statement.
With respect to the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to originals of all documents submitted to us as
certified or reproduced copies. We also have obtained from the officers of the
Company certificates as to all factual matters necessary for the purpose of this
opinion and, insofar as this opinion is based on such matters of fact, we have
relied on such certificates without independent investigation.
Based solely upon the foregoing and assuming, without further
inquiry, that (i) all awards granted under the Plan to date have been, and all
awards to be granted under the Plan will be, duly and validly granted in
accordance with the terms of the Plan, (ii) the consideration for the shares of
Common Stock to be issued pursuant to such awards will be received prior to the
issuance thereof, (iii) the shares of Common Stock to be issued pursuant to such
awards will be issued in accordance with the terms of the Plan and the
applicable Agreement, (iv) the Registration Statement will become effective
under the Securities Act prior to the issuance of any shares of Common Stock
under the Plan and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or be pending before the SEC, (v)
prospectuses will be updated and delivered to participants in the Plan as
required by the Securities Act and the rules and regulations promulgated by the
SEC thereunder, and (vi) the grant of awards under the Plan and the issuance of
shares of Common Stock pursuant to such awards will comply with the securities
laws of each state or jurisdiction applicable thereto (other than the Securities
Act), upon which assumptions the following opinion is expressly conditioned, it
is the opinion of the undersigned that the 3,600,000 shares of Common Stock
issuable by the Company pursuant to awards granted pursuant to the Plan will be,
when issued and delivered against payment therefor in accordance with the Plan,
the applicable Agreement and the Registration Statement, duly authorized,
validly issued, fully paid and non-assessable.
Page 13 of 53
<PAGE>
Tarrant Apparel Group
November 10, 2000
Page 3
This opinion is limited to the General Corporation Law of the State
of California and the Securities Act and the rules and regulations promulgated
by the SEC thereunder, to present judicial interpretations thereof and to facts
as they presently exist. In rendering this opinion, we have no obligation to
revise or supplement it should the current laws of the State of California or
the Securities Act or such rules and regulations be changed by legislative
action, judicial decision or otherwise or if we become aware of any facts that
change the opinion expressed herein after the date hereof.
This opinion is issued to you solely for use in connection with the
Registration Statement and is not to be quoted or otherwise referred to in any
financial statements of the Company or related document, nor is it to be filed
with or furnished to any government agency or other person, without the prior
written consent of the undersigned in each instance.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
Page 14 of 53
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors (Ernst & Young LLP)
Page 15 of 53
<PAGE>
Exhibit 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the Registration Statement
(Form S-8 333- 0000) pertaining to the Employee Incentive Plan of Tarrant
Apparel Group of our report dated March 17, 2000 with respect to the
consolidated financial statements and schedules of Tarrant Apparel Group
for the year ended December 31, 1999 included in the Annual Report on Form
10-K of Tarrant Apparel Group for the year ended December 31, 1999.
ERNST & YOUNG LLP
Los Angeles, California
November 10, 2000
Page 16 of 53
<PAGE>
EXHIBIT 99.1
Employee Incentive Plan
Page 17 of 53
<PAGE>
Exhibit 99.1
------------
TARRANT APPAREL GROUP
EMPLOYEE INCENTIVE PLAN
(Formerly the "1995 Stock Option Plan")
(Amended and Restated as of May 2, 1997)
(Amended as of May 3, 1999)
Tarrant Apparel Group, a California corporation (the "Company"), by
action of both its Compensation Committee and its Board of Directors 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 motivate officers, directors, employees and
independent contractors by providing for performance-based benefits, and to
strengthen the mutuality of interests between such persons 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 10, 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).
-1-
Page 18 of 53
<PAGE>
(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.
(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) "Exchange 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 Exchange 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
-2-
Page 19 of 53
<PAGE>
(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) "Incentive Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of the Plan that is intended to be and
is specifically designated as an "incentive stock option" within the meaning of
Section 422 of the Code.
(l) "Non-Qualified Stock Option" means any Stock Option
granted pursuant to the provisions of Section 6 of the Plan that is not an
Incentive Stock Option.
(m) "Participant" means an officer, director, employee or
independent contractor with respect to the Company or a Subsidiary who is
granted an Award under the Plan.
(n) "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.
(o) "Performance Share Grant" means an Award of units
representing shares of Common Stock granted pursuant to the provisions of
Section 9 of the Plan.
(p) "Performance Unit Grant" means an Award of monetary units
granted pursuant to the provisions of Section 9 of the Plan.
(q) "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.
(r) "Restricted Award" means an Award granted pursuant to
the provisions of Section 8 of the Plan.
(s) "Restricted Stock Grant" means an Award of shares of
Common Stock granted pursuant to the provisions of Section 8 of the Plan.
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(t) "Restricted Unit Grant" means an Award of units
representing shares of Common Stock granted pursuant to the provisions of
Section 8 of the Plan.
(u) "Stock Appreciation Right" means an Award to benefit
from the appreciation of Common Stock granted pursuant to the provisions of
Section 7 of the Plan.
(v) "Stock Option" means an Award to purchase shares of
Common Stock granted pursuant to the provisions of Section 6 of the Plan.
(w) "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).
(x) "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 Exchange 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 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.
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(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 Exchange 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.
(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.
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(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.
(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.
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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 15 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.
5. Eligibility. Incentive Stock Options may be granted under the
Plan only to employees (including employee directors) of the Company and its
Subsidiaries. Officer, directors, employees, and independent contractors are
eligible to receive Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Awards, Performance Awards and other Awards under the Plan.
6. Stock Options. Stock Options granted under the Plan may be in
the form of Incentive Stock Options or Non-Qualified Stock Options (collectively
referred to as "Stock Options"). Stock Options shall be subject to the terms and
conditions set forth below. Each written Stock Option agreement shall contain
such additional terms and conditions, not inconsistent with the express
provisions of the Plan, as the Committee shall deem desirable.
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<PAGE>
(a) Grant. Stock Options shall be granted under the Plan on
such terms and conditions not inconsistent with the provisions of the Plan and
pursuant to written agreements with the optionee in such form as the Committee
may from time to time approve in its sole and absolute discretion. The terms of
individual Stock Option agreements need not be identical. Each Stock Option
agreement shall state specifically whether it is intended to be an Incentive
Stock Option agreement or a Non-Qualified Stock Option agreement. Stock Options
may be granted alone or in addition to other Awards under the Plan. Only common
law employees may receive grants of Incentive Stock Options. No person may be
granted (in any calendar year) options to purchase more than one hundred
thousand (100,000) shares of Common Stock (subject to adjustment pursuant to
Section 15). The foregoing sentence is an annual limitation on grants and not a
cumulative limitation. Any Stock Option repriced during a year shall count
against this annual limitation.
(b) Stock Option Price. The exercise price per share of
Common Stock purchasable under a Stock Option shall be determined by the
Committee at the time of grant. In no event shall the exercise price of a Stock
Option be less than one hundred percent (100%) of the Fair Market Value of the
Common Stock on the Date of the Grant of such Stock Option. In the case of a Ten
Percent Shareholder, the exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the Common Stock on its Date of
Grant.
(c) Option Term. The term of each Stock Option shall be fixed
by the Committee. However, the term of any Stock Option shall not exceed ten
(10) years after the date such Stock Option is granted. Furthermore, the term of
an Incentive Stock Option granted to a Ten Percent Shareholder shall not exceed
five (5) years after its Date of Grant.
(d) Exercisability. A Stock Option shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee at the Date of Grant and set forth in the written
Stock Option agreement. However, no Stock Option shall be exercisable during the
first six (6) months after the date such Stock Option is granted. A written
Stock Option agreement may, if permitted pursuant to its terms, become
exercisable in full 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 16 below).
(e) Method of Exercise. A Stock Option may be exercised, in
whole or in part, by giving written notice of exercise to the Company specifying
the number of shares to be purchased. Such notice shall be accompanied by
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<PAGE>
payment in full of the purchase price (i) in cash or (ii) if acceptable to the
Committee, in shares of Common Stock already owned by the Participant or a
promissory note. The Committee may also permit Participants, either on a
selective or aggregate basis, to simultaneously exercise Options and sell the
shares of Common Stock thereby acquired, pursuant to a brokerage or similar
arrangement, approved in advance by the Committee, and use the proceeds from
such sale as payment of part or all of the purchase price of such shares.
(f) Special Rule for Incentive Stock Options. With respect to
Incentive Stock Options granted under the Plan, the aggregate Fair Market Value
(determined as of the Date of Grant) of the number of shares with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under this Plan and all other incentive
stock option plans of this Company or its Subsidiaries) shall not exceed one
hundred thousand dollars ($100,000) or such other limit as may be required by
the Code.
7. 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 15 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,
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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 16 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).
(d) Form of Payment. Payment pursuant to a Stock Appreciation
Right may be made (i) in cash, (ii) in shares of Common Stock, (iii) a
promissory note or (iv) 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 16) shall be paid in cash.
8. 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.
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<PAGE>
(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
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 16). 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
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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.
9. 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
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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,
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 16 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.
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10. 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.
11. 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.
12. Dividend Equivalents. Awards of Stock Options, 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.
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13. 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.
14. 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. Subject to
the foregoing, 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.
15. 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 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 Committee or 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 or the Board 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 option or stock appreciation
rights and/or the obligation to make future grants of options or rights to
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<PAGE>
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.
16. 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 Options or 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.
(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 Exchange 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;
-16-
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<PAGE>
(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; or
(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.
17. 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
issued under the Plan (except for adjustments pursuant to Section 15 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 Exchange 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").
18. 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
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<PAGE>
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
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 material breach of any provision of
an employment or independent contractor 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
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<PAGE>
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 motivate officers,
directors, employees or independent contractors 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.
(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: February 24, 1997 By: /s/ Gerard Guez
----------------------------------------------
Chairman, Board of Directors
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<PAGE>
CERTIFICATE OF COMPENSATION COMMITTEE
-------------------------------------
The undersigned two persons, being members of the Compensation
Committee and "outside directors" within the meaning of Section 162(m)(4)(C)(i)
of the Internal Revenue Code of 1986, hereby certify that the foregoing Tarrant
Apparel Group Employee Incentive Plan was adopted and established by the
Compensation Committee on December 20, 1996.
Date: January 16, 1997 /s/ Barry S. Aved
--------------------------------------------
Compensation Committee Member
Date: January 16, 1997 /s/ Walter L. Krieger
--------------------------------------------
Compensation Committee Member
CERTIFICATE OF SECRETARY
------------------------
The undersigned, being the Corporate Secretary of Tarrant Apparel
Group, a California corporation, hereby certifies that the foregoing Tarrant
Apparel Group Employee Incentive Plan (the "Plan") was, pursuant to the Articles
and Bylaws of the Corporation, duly adopted by the Compensation Committee on
December 20, 1996, and by the Board of Directors as a whole on January 13, 1997.
The Plan was approved by the shareholders of the Corporation on May 2, 1997.
Date: May 2, 1997 /s/ Corazon R. Reyes
--------------------------------------------
Secretary
[Seal of Tarrant Apparel Group]
-20-
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<PAGE>
CERTIFICATE OF SECRETARY
------------------------
The undersigned, being the Corporate Secretary of Tarrant Apparel
Group, a California corporation, hereby certifies that Section 4(b) of the
foregoing Tarrant Apparel Group Employee Incentive Plan (the "Plan") was,
pursuant to Section 16 of the Plan, duly amended by the Board of Directors as a
whole on April 2, 1999 and the shareholders of the Corporation on May 3, 1999 to
increase from 2,600,000 to 3,600,000 the number of shares of the Common Stock of
the Corporation which may be subject to awards granted under the Plan.
Date: May 3, 1999 /s/ Corazon R. Reyes
--------------------------------------------
Corporate Secretary
[Seal of Tarrant Apparel Group]
-21-
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<PAGE>
EXHIBIT 99.2
Form of Incentive Stock Option Agreement
Page 39 of 53
<PAGE>
Exhibit 99.2
------------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the Date of Grant set
forth below, between TARRANT APPAREL GROUP, a California corporation (the
"Company"), and the person whose name appears on the signature page hereof (the
"Optionee"). All capitalized terms not specifically defined herein shall have
the meanings set forth in the Company's Employee Incentive Plan (the "Plan").
RECITALS
--------
A. The Board of Directors and the shareholders of the Company both
approved and adopted the Plan. The Plan provides for the granting of awards to
directors, officers, employees and consultants of the Company or any of its
affiliates.
B. Pursuant to the Plan, the Plan is administered by a committee
appointed by and comprised of members of the Company's Board of Directors (the
"Committee").
C. Pursuant to the Plan, the Committee has determined that it is to the
advantage and in the best interests of the Company and its shareholders to grant
an incentive stock option to the Optionee covering shares of the Company's
Common Stock (or any class of stock into which such Common Stock is converted or
reclassified as provided in the Plan) ("Common Stock") as an inducement to
remain in the service of the Company and as an incentive for increased effort
during such service, and has approved the execution of this Incentive Stock
Option Agreement between the Company and the Optionee.
D. The option granted hereby is intended to qualify as an "incentive
stock option" under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. Effective as of the date of grant set forth on
the signature page hereof (the "Date of Grant"), the Company grants to the
Optionee the right and option (the "Option") to purchase on the terms and
conditions hereinafter set forth, all or any part of such number of shares of
Common Stock at such purchase price per share as are set forth on the signature
page hereof, which price is not less than the fair market value of such stock
(as determined pursuant to Section 4 hereof) on the Date of Grant; provided,
however, that if the Optionee possesses more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company (and its
affiliates) (a "10% Shareholder"), such price is not less than one hundred and
ten percent (110%) of the fair market value of such stock (as determined
pursuant to Section 4) on the Date of Grant. The Option shall be exercisable
-1-
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<PAGE>
from time to time in accordance with the provisions of this Agreement during a
period expiring on the date set forth on the signature page hereof (the
"Expiration Date") or earlier in accordance with Section 5; provided, however,
that if the Option is granted to a 10% Shareholder, the Expiration Date shall be
the fifth anniversary of the Date of Grant.
2. Vesting. The Option shall become exercisable to purchase, and
shall vest with respect to, such percentage of the shares covered hereby
(rounded to the nearest whole share) as may be set forth on the signature page
hereof. In each case the number of shares which may be purchased shall be
calculated to the nearest full share.
3. Manner of Exercise. Each exercise of the Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased solely (i) in cash or by
check payable to the order of the Company, (ii) by delivery of shares of Common
Stock of the Company already owned by, and in the possession of, the Optionee,
valued at their fair market value, as determined in accordance with Section 4,
or (iii) (x) by a promissory note made by Optionee in favor of the Company, upon
the terms and conditions determined by the Committee including, to the extent
the Committee determines appropriate, a security interest in the shares issuable
upon exercise or other property, or (y) through a "cashless exercise," in either
case complying with applicable law (including, without limitation, state and
federal margin requirements), or any combination thereof. Shares of Common Stock
used to satisfy the exercise price of this Option shall be valued at their fair
market value determined (in accordance with Section 4 hereof) on the date of
exercise (or if such date is not a business day, as of the close of the business
day immediately preceding such date). This Option may not be exercised for a
fraction of a share and no partial exercise of this Option may be for less than
(a) one hundred (100) shares or (b) the total number of shares then eligible for
exercise, if less than one hundred (100) shares.
The Option may be exercised (i) during the lifetime of the Optionee
only by the Optionee; (ii) to the extent permitted by the Committee or by the
terms of this Agreement, Optionee's spouse if such spouse obtained the Option
pursuant to a qualified domestic relations order as defined by the Code or Title
I of ERISA, or the rules thereunder ("Qualified Domestic Relations Order"); and
(iii) after the Optionee's death by his or her transferees by will or the laws
of descent or distribution.
4. Fair Market Value of Common Stock. The fair market value of a
share of Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the principal stock exchange on which such
shares are then listed or, if such shares are not then listed on a stock
exchange, by reference to the closing price (if approved for quotation on the
NASDAQ National Market System) or the mean between the bid and asked price (if
other over-the-counter issue) of a share as supplied by the National
Association of Securities Dealers, Inc. through NASDAQ (or its successor in
function), in each case as reported by The Wall Street Journal, for the business
day immediately preceding the Date of Grant or the date on which the Option is
exercised (or, if for any reason no such price is available, in such other
manner as the Committee may deem appropriate to reflect the then fair market
value thereof).
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<PAGE>
5. Termination of Employment; Death or Permanent Disability. If the
Optionee ceases to be employed by the Company or one of its affiliates for any
reason other than the Optionee's death or "permanent disability" (within the
meaning of Section 22(e)(3) of the Code), the Option shall be exercisable until
the earlier of (i) the Expiration Date or (ii) a date three (3) months after the
date the Optionee ceases to be an employee of the Company or such affiliate, to
the extent exercisable on the date of such cessation of employment, and shall
thereafter expire and be void and of no further force or effect. A leave of
absence approved in writing by the Committee shall not be deemed a termination
of employment for the purposes of this Section 5, but the Option may not be
exercised during any such leave of absence, except during the first three (3)
months thereof. If the Optionee dies or becomes "permanently disabled" while the
Optionee is employed by the Company or one of its affiliates, the Option shall
expire on the earlier of (i) the Expiration Date or (ii) a date one (1) year
after the date of such death or "permanent disability," to the extent
exercisable on the date of death or permanent disability, and shall thereafter
expire and be void and of no further force or effect. During such period after
death, the Option may, to the extent that it remained unexercised (but
exercisable by the Optionee according to the Option's terms) on the date of such
death, be exercised by the person or persons to whom the Optionee's rights under
the Option shall pass by the Optionee's will or by the laws of descent and
distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws
and Exchange Rules. By accepting the Option, the Optionee represents and agrees,
for the Optionee and his or her legal successors (by will or the laws of descent
and distribution or through a Qualified Domestic Relations Order), that none of
the shares purchased upon exercise of the Option will be acquired with a view to
any sale, transfer or distribution of said shares in violation of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or any applicable state "blue sky" laws. If required by
the Committee at the time the Option is exercised, the Optionee or any other
person entitled to exercise the Option shall furnish evidence satisfactory to
the Company (including a written and signed representation) to such effect in
form and substance satisfactory to the Company, including an indemnification of
the Company in the event of any violation of the Securities Act or state blue
sky laws by such person. The Company shall use its reasonable efforts to take
all necessary and appropriate action to assure that the shares issuable upon the
exercise of this Option shall be issued in full compliance with the Securities
Act, state blue sky laws and all applicable listing requirements of any
principal securities exchange on which shares of the same class are listed.
7. Withholding of Taxes. Upon any disposition by the Optionee or
the Optionee's legal successor of shares of Common Stock acquired pursuant to
the exercise of this Option within two (2) years of the Date of Grant or within
one (1) year of the exercise of this Option (an "Early Disposition"), the
Company shall have the right to require the Optionee or the Optionee's legal
successor to pay the Company the amount of any taxes which the Company may be
required to withhold with respect to such shares. The Optionee agrees, as
partial consideration for the designation of the Option as an incentive stock
option under Section 422 of the Code, to notify the Company in writing promptly,
and in no event later than thirty (30) days following, any Early Disposition.
-3-
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<PAGE>
8. No Assignment. The Option and all other rights and privileges
granted hereby shall not be transferred, either voluntarily or by operation of
law otherwise than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order. Upon any attempt to so transfer or
otherwise dispose of this Option or any other right or privileges granted hereby
contrary to the provisions hereof, this Option and all rights and privileges
contained herein shall immediately become null and void and of no further force
or effect.
9. Adjustment for Reorganizations, Stock Splits, etc. If the
outstanding shares of Common Stock of the Company (or any other class of shares
or securities which shall have become issuable upon the exercise of this Option
pursuant to this sentence) are increased, decreased, changed into or exchanged
for a different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
receivable upon the exercise of this Option, without change in the total price
applicable to the unexercised portion of this Option, but with a corresponding
adjustment in the price for each share or other unit of any security covered by
this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, this
Option shall terminate; provided, however, that notwithstanding the foregoing,
the Committee shall provide in writing in connection with such transaction for
the appropriate satisfaction of this Option by one or more of the following
alternatives (separately or in combination): (i) for this Option to become
immediately exercisable notwithstanding the provisions of Sections 2 and 3; (ii)
for the assumption by the successor corporation of this Option or the
substitution by such corporation therefor of a new option covering the stock of
the successor corporation or its affiliates with appropriate adjustments as to
the number and kind of shares and prices; (iii) for the continuance of the Plan
by such successor corporation in which event the Plan and this Option shall
continue in the manner and under the terms so provided; or (iv) for the payment
in cash or stock in lieu of and in complete satisfaction of this Option.
Adjustments under this Section 9 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under this Option on any such adjustment.
10. Participation by the Optionee in Other Company Plans. Nothing
herein contained shall affect the right of the Optionee to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
11. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Optionee nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
-4-
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<PAGE>
the Company in respect of any shares issuable upon any exercise of the Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Optionee. No shares shall be
issued and delivered upon the exercise of this Option unless and until there
shall have been full compliance with all applicable requirements of the
Securities Act (whether by registration or satisfaction of an exemption
therefrom), all applicable listing requirements of a national securities
exchange on which shares of the same class are listed and any other requirements
of law or of any regulatory bodies having jurisdiction over such issuance and
delivery.
12. Not an Employment or Service Contract. Nothing herein contained
shall be construed as an agreement by the Company or any of its affiliates,
express or implied, to employ the Optionee or contract for the Optionee's
services, to restrict the Company's or such affiliate's right to discharge the
Optionee or cease contracting for the Optionee's services or to modify, extend
or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Optionee and the
Company or any of its affiliates.
13. Agreement Subject to the Plan. The Option hereby granted is
subject to, and the Company and the Optionee agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Optionee's rights under this Option without the prior written consent
of the Optionee.
-5-
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<PAGE>
14. Execution. The interpretation, performance and enforcement of
this Agreement shall be governed by the internal substantive laws of the State
of California.
COMPANY: TARRANT APPAREL GROUP
By_______________________________
Its_______________________________
OPTIONEE:
---------------------------------
Name
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<PAGE>
By his or her signature below, the spouse of the Optionee agrees to be
bound by all of the terms and conditions of the foregoing Agreement.
OPTIONEE'S SPOUSE:
---------------------------------
Name
The following terms and conditions are an integral part of the foregoing
Incentive Stock Option Agreement.
Optionee: _________________________________
Address: _________________________________
_________________________________
Social Security Number: _________________________________
Date of Grant: _________________________________
Number of shares purchasable: _________________________________
Exercise Price per share: _________________________________
Expiration Date: _________________________________
--------------------------------------------------------------------------------
Anniversary Date Percentage Initially Cumulative Percentage
of the Date of Grant Exercisable Exercisable
--------------------------------------------------------------------------------
First 25% 25%
--------------------------------------------------------------------------------
Second 25% 50%
--------------------------------------------------------------------------------
Third 25% 75%
--------------------------------------------------------------------------------
Fourth 25% 100%
--------------------------------------------------------------------------------
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<PAGE>
EXHIBIT 99.3
Form of Non-Qualified Stock Option Agreement
Page 47 of 53
<PAGE>
EXHIBIT 99.3
------------
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS NON-QUALIFIED STOCK OPTION AGREEMENT is made as of the Date of Grant
set forth below, between TARRANT APPAREL GROUP, a California corporation (the
"Company"), and the employee of the Company whose name appears below (the
"Optionee"). All capitalized terms not specifically defined herein shall have
the meanings set forth in the Company's Employee Incentive Plan (the "Plan").
RECITALS
--------
A. The Board of Directors and the shareholders of the Company both
approved and adopted the Plan. The Plan provides for the granting of awards to
directors, officers, employees and consultants of the Company or any of its
affiliates.
B. Pursuant to the Plan, the Plan is administered by the Committee
appointed by and comprised of members of the Company's Board of Directors.
C. Pursuant to the Plan, the Compensation Committee (the "Committee")
has determined that it is to the advantage and in the best interests of the
Company and its shareholders to grant an non-qualified stock option to the
Optionee covering shares of the Company's Common Stock (or any class of stock
into which such Common Stock is converted or reclassified as provided in the
Plan) ("Common Stock") as an inducement to remain in the service of the Company
and as an incentive for increased effort during such service, and has approved
the execution of this Non-Qualified Stock Option Agreement between the Company
and the Optionee.
D. The option granted hereby is not intended to qualify as an
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to the Optionee the right
and option (the "Option") to purchase on the terms and conditions hereinafter
set forth, all or any part of such number of shares of Common Stock at such
purchase price per share as are set forth below, which price is not less than
the fair market value of such stock (as determined pursuant to Section 4 hereof)
on the Date of Grant. The Option shall be exercisable from time to time in
accordance with the provisions of this Agreement during a period expiring on the
tenth anniversary of the Date of Grant (the "Expiration Date") or earlier in
accordance with Section 5.
2. Vesting. The Option shall become exercisable to purchase, and
shall vest with respect to, such percentage of the shares covered hereby
(rounded to the nearest whole share) as may be set forth on the signature page
-1-
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<PAGE>
hereof. In each case the number of shares which may be purchased shall be
calculated to the nearest full share.
3. Manner of Exercise. Each exercise of the Option shall be by
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchased price of the shares to be purchased solely (i) in cash or by
check payable to the order of the Company, (ii) by delivery of shares of Common
Stock of the Company already owned by, and in the possession of, the Optionee,
valued at their fair market value, as determined in accordance with Section 4,
or (iii) (x) by a promissory note made by Optionee in favor of the Company, upon
the terms and conditions determined by the Committee including, to the extent
the Committee determines appropriate, a security interest in the shares issuable
upon exercise or other property, or (y) through a "cashless exercise," in either
case complying with applicable law (including, without limitation, state and
federal margin requirements), or any combination thereof. Shares of Common Stock
used to satisfy the exercise price of this Option shall be valued at their fair
market value determined (in accordance with Section 4 hereof) on the date of
exercise (or if such date is not a business day, as of the close of the business
day immediately preceding date). This Option may not be exercised for a fraction
of a share and no partial exercise of this Option may be for less than (a) one
hundred (100) shares or (b) the total number of shares then eligible for
exercise, if less than one hundred (100) shares.
The Option may be exercised (i) during the lifetime of the Optionee
only by the Optionee; (ii) to the extent permitted by the Committee or by the
terms of this Agreement, Optionee's spouse if such spouse obtained the Option
pursuant to a qualified domestic relations ordered as defined by the Code of
Title I of ERISA, or the rules thereunder ("Qualified Domestic Relations
Order"); and (iii) after the Optionee's death by his or her transferees by will
or the laws of descent or distribution.
4. Fair Market Value of Common Stock. The fair market value of a
share of Common Stock shall be determined for purposes of this Agreement by
reference to the closing price on the principal stock exchange on which such
shares are then listed or, if such shares are not then listed on a stock
exchange, by reference to the closing price (if approved for quotation on the
NASDAQ National Market System) or the mean between the bid and asked price (if
other over-the-counter issue) of a share as supplied by the National
Association of Securities Dealers, Inc. through NASDAQ (or its successor in
function), in each case as reported by The Wall Street Journal, for the business
day immediately preceding the date on which the option is granted (which, for
all purposes, shall be the Date of Grant) or exercised (or, if for any reason no
such price is available, in such other manner as the Committee may deem
appropriate to reflect the then fair market value thereof).
5. Termination of Employment; Death or Permanent Disability. If the
Optionee ceases to be employed by the Company or one of its affiliates for any
reason other than the Optionee's death or "permanent disability" (within the
meaning of Section 22(e)(3) of the Code), the Option shall be exercisable until
the earlier of (i) the Expiration Date or (ii) a date three (3) months after the
date the Optionee ceases to be an employee of the Company or such affiliate, to
the extent exercisable on the date of such cessation of employment, and shall
thereafter expire and be void and of no further force or effect. A leave of
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absence approved in writing by the Committee shall not be deemed a termination
of employment for the purposes of this Section 5, but the Option may not be
exercised during any such leave of absence, except during the first three (3)
months thereof. If the Optionee dies or becomes "permanently disabled" while the
Optionee is employed by the Company or one of its affiliates, the Option shall
expire on the earlier of (i) the Expiration Date or (ii) a date one (1) year
after the date of such death or "permanent disability," to the extent
exercisable on the date of death or permanent disability, and shall thereafter
expire and be void and of no further force or effect. During such period after
death, the Option may, to the extent that it remained unexercised (but
exercisable by the Optionee according to the Option's terms) on the date of such
death, be exercised by the person or persons to whom the Optionee's rights under
the Option shall pass by the Optionee's will or by the laws of descent and
distribution.
6. Shares to be Issued in Compliance with Federal Securities Laws
and Exchange Rules. By accepting the Option, the Optionee represents and agrees,
for the Optionee and his or her legal successors (by will or the laws of descent
and distribution or through a Qualified Domestic Relations Order), that none of
the shares purchased upon exercise of the Option will be acquired with a view to
any sale, transfer or distribution of said shares in violation of the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, or any applicable state "blue sky" laws. If required by
the Committee at the time the Option is exercised, the Optionee or any other
person entitled to exercise the Option shall furnish evidence satisfactory to
the Company (including a written and signed representation) to such effect in
form and substance satisfactory to the Company, including an indemnification of
the Company in the event of any violation of the Securities Act or state blue
sky laws by such person. The Company shall use reasonable efforts to take all
necessary and appropriate action to assure that the shares issuable upon the
exercise of this Option shall be issued in full compliance with the Securities
Act, state blue sky laws and all applicable listing requirements of any
principal securities exchange on which shares of the same class are listed.
7. Withholding of Taxes. Upon any disposition by the Optionee or
the Optionee's legal successor of shares of Common Stock acquired pursuant to
the exercise of this Option within two (2) years of the Date of Grant or within
one (1) year of the exercise of this Option (in "Early Disposition"), the
Company shall have the right to require the Optionee or the Optionee's legal
successor to pay the Company the amount of any taxes which the Company may be
required to withhold with respect to such shares.
8. No Assignment. The Option and all other rights and privileges
granted hereby shall not be transferred, either voluntarily or by operation of
law otherwise than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order. Upon any attempt to so transfer or
otherwise dispose of this Option or any other right or privileges granted hereby
contrary to the provisions hereof, this Option and all rights and privileges
contained herein shall immediately become null and void and of no further force
or effect.
9. Adjustment for Reorganizations, Stock Splits, etc. If the
outstanding shares of Common Stock of the Company (or any other class of shares
or securities which shall have become issuable upon the exercise of this Option
pursuant to this sentence) are increased, decreased, changed into or exchanged
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<PAGE>
for a different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
receivable upon the exercise of this Option, without change in the total price
applicable to the unexercised portion of this Option, but with a corresponding
adjustment in the price for each share or other unit of any security covered by
this Option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, this
Option shall terminate; provided, however, that notwithstanding the foregoing,
the Committee shall provide in writing in connection with such transaction for
the appropriate satisfaction of this Option by one or more of the following
alternatives (separately or in combination): (i) for this Option to become
immediately exercisable notwithstanding the provisions of Sections 2 and 3; (ii)
for the assumption by the successor corporation of this Option or the
substitution by such corporation therefor of a new option covering the stock of
the successor corporation or its affiliates with appropriate adjustments as to
the number and kind of shares and prices; (iii) for the continuance of the Plan
by such successor corporation in which event the Plan and this Option shall
continue in the manner and under the terms so provided; or (iv) for the payment
in cash or stock in lieu of and in complete satisfaction of this Option.
Adjustments under this Section 9 shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. No fractional shares of stock
shall be issued under this Option on any such adjustment.
10. Participation by the Optionee in Other Company Plans. Nothing
herein contained shall affect the right of the Optionee to participate in and
receive benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
11. No Rights as a Shareholder Until Issuance of Stock Certificate.
Neither the Optionee nor any other person legally entitled to exercise this
Option shall be entitled to any of the rights or privileges of a shareholder of
the Company in respect of any shares issuable upon any exercise of the Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to the Optionee. No shares shall be
issued and delivered upon the exercise of this Option unless and until there
shall have been full compliance with all applicable requirements of the
Securities Act (whether by registration or satisfaction of an exemption
therefrom), all applicable listing requirements of a national securities
exchange on which shares of the same class are listed and any other requirements
of law or of any regulatory bodies having jurisdiction over such issuance and
delivery.
12. Not an Employment or Service Contract. Nothing herein contained
shall be construed as an agreement by the Company or any of its affiliates,
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<PAGE>
express or implied, to employ the Optionee or contract for the Optionee's
services, to restrict the Company's or such affiliate's right to discharge the
Optionee or cease contracting for the Optionee's services or to modify, extend
or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between the Optionee and the
Company or any of its affiliates.
13. Agreement Subject to the Plan. The Option hereby granted is
subject to, and the Company and the Optionee agree to be bound by, all of the
terms and conditions of the Plan, as the same shall be amended from time to time
in accordance with the terms thereof, but no such amendment shall adversely
affect the Optionee's rights under this Option without the prior written consent
of the Optionee.
14. Execution. The interpretation, performance and enforcement of
this Agreement shall be governed by the internal substantive laws of the State
of California.
COMPANY: TARRANT APPAREL GROUP
By_______________________________
Its_______________________________
OPTIONEE:
---------------------------------
Name
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<PAGE>
By his or her signature below, the spouse of the Optionee agrees to be
bound by all of the terms and conditions of the foregoing Agreement.
OPTIONEE'S SPOUSE:
---------------------------------
Name
The following terms and conditions are an integral part of the foregoing
Incentive Stock Option Agreement.
Optionee: _________________________________
Address: _________________________________
_________________________________
Social Security Number: _________________________________
Date of Grant: _________________________________
Number of shares purchasable: _________________________________
Exercise Price per share: _________________________________
Expiration Date: _________________________________
--------------------------------------------------------------------------------
Anniversary Date Percentage Initially Cumulative Percentage
of the Date of Grant Exercisable Exercisable
--------------------------------------------------------------------------------
First 25% 25%
--------------------------------------------------------------------------------
Second 25% 50%
--------------------------------------------------------------------------------
Third 25% 75%
--------------------------------------------------------------------------------
Fourth 25% 100%
--------------------------------------------------------------------------------
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