SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. _____)
Filed by the Registrant |X|
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Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of
|X| Definitive Proxy Statement the Commission Only (as
|_| Definitive Additional Materials permitted by Rule 14a-6
|_| Soliciting Material Pursuant to (e)(2)
ss.240.14a-12
TARRANT APPAREL GROUP
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction applies:
================================================================================
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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|_| Check box if any part of the fee is offset as provided by
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the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
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TARRANT APPAREL GROUP
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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TIME.......................................... 10:00 a.m. Pacific Daylight
Time on Thursday, May 25, 2006
PLACE......................................... Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
ITEMS OF BUSINESS............................. (1) To elect five Class
II members of the
Board of Directors
for two-year terms.
(2) To approve our 2006
Stock Incentive Plan,
which authorizes the
issuance of up to
5,100,000 shares of
our common stock
pursuant to awards
granted under the
plan;
(3) To ratify the
appointment of Singer
Lewak Greenbaum &
Goldstein LLP as our
independent
registered public
accounting firm for
the year ended
December 31, 2006.
(4) To transact such
other business as may
properly come before
the Meeting and any
adjournment or
postponement.
RECORD DATE................................... You can vote if at the close
of business on March 31, 2006,
you were a shareholder of the
Company.
PROXY VOTING.................................. All shareholders are cordially
invited to attend the Annual
Meeting in person. However, to
ensure your representation at
the Annual Meeting, you are
urged to vote promptly by
signing and returning the
enclosed Proxy card.
/s/ Gerard Guez
April 10, 2006 ----------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
TARRANT APPAREL GROUP
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(323) 780-8250
PROXY STATEMENT
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These Proxy materials are delivered in connection with the solicitation by the
Board of Directors of Tarrant Apparel Group, a California corporation
("Tarrant," the "Company", "we", or "us"), of Proxies to be voted at our 2006
Annual Meeting of Shareholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of Shareholders on Thursday, May
25, 2006, beginning at 10:00 a.m. Pacific Daylight Time. The meeting will be
held at our corporate headquarters, 3151 East Washington Boulevard, Los Angeles,
California, 90023.
It is anticipated that the 2005 Annual Report and this Proxy Statement and the
accompanying Proxy will be mailed to shareholders on or about April 17, 2006.
SHAREHOLDERS ENTITLED TO VOTE. Holders of our common stock at the close of
business on March 31, 2006 are entitled to receive this notice and to vote their
shares at the Annual Meeting. Common stock is the only outstanding class of
securities of the Company entitled to vote at the Annual Meeting. As of March
31, 2006, there were 30,543,763 shares of common stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a shareholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All shareholders can vote by written Proxy card. Your submission of the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE meeting. If you are a shareholder of record, you may
revoke your Proxy at any time before the meeting either by filing with the
Secretary of the Company, at its principal executive offices, a written notice
of revocation or a duly executed Proxy bearing a later date, or by attending the
Annual Meeting and expressing a desire to vote your shares in person. All shares
entitled to vote and represented by properly executed Proxies received prior to
the Annual Meeting, and not revoked, will be voted at the Annual Meeting in
accordance with the instructions indicated on those Proxies. If no instructions
are indicated on a properly executed Proxy, the shares represented by that Proxy
will be voted as recommended by the Board of Directors.
QUORUM. The presence, in person or by Proxy, of a majority of the votes entitled
to be cast by the shareholders entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Annual Meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING. Each share of our common stock is entitled to one vote on each matter
properly brought before the meeting. Abstentions will be counted toward the
tabulation of votes cast on proposals submitted to shareholders and will have
the same effect as negative votes, while broker non-votes will not be counted as
votes cast for or against such matters.
ELECTION OF DIRECTORS. Our Articles of Incorporation do not authorize cumulative
voting. In the election of directors, the five candidates receiving the highest
number of votes at the Annual Meeting will be elected. If any nominee is unable
or unwilling to serve as a director at the time of the Annual Meeting, the
Proxies will be voted for such other nominee(s) as shall be designated by the
current Board of Directors to fill any vacancy. We have no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
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ADOPTION OF TARRANT'S 2006 STOCK INCENTIVE PLAN. The proposal to adopt the 2006
Stock Incentive Plan requires the affirmative vote of a majority of the shares
of common stock present or represented and entitled to vote at the Annual
Meeting.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS. The ratification of the
appointment of Singer Lewak Greenbaum & Goldstein LLP as our independent
registered public accounting firm for the year ending December 31, 2006 will
require the affirmative vote of a majority of the shares of common stock present
or represented and entitled to vote at the Annual Meeting.
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matter to be raised at the Annual Meeting.
In the event a shareholder proposal was not submitted to us prior to March 18,
2006, the enclosed Proxy will confer authority on the Proxyholders to vote the
shares in accordance with their best judgment and discretion if the proposal is
presented at the Meeting. As of the date hereof, no shareholder proposal has
been submitted to us, and management is not aware of any other matters to be
presented for action at the Meeting. However, if any other matters properly come
before the Meeting, the Proxies solicited hereby will be voted by the
Proxyholders in accordance with the recommendations of the Board of Directors.
Such authorization includes authority to appoint a substitute nominee for any
Board of Directors' nominee identified herein where death, illness or other
circumstance arises which prevents such nominee from serving in such position
and to vote such Proxy for such substitute nominee.
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ITEM 1: ELECTION OF DIRECTORS
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Item 1 is the election of five Class II members of the Board of Directors. Our
Articles of Incorporation provide that the Board of Directors is divided into
two classes which are elected for staggered two-year terms. One of the two
classes is elected each year to succeed the directors whose terms are expiring.
Our Bylaws provide that the number of directors of the Company shall be fixed
from time to time exclusively by the Board of Directors, but shall not be less
than six nor more than eleven. The Board of Directors has fixed the number of
directors at nine.
The Class II directors whose terms expire at the 2006 Annual Meeting are Gerard
Guez, Todd Kay, Corazon Reyes, Joseph Mizrachi and Simon Mani. The Board of
Directors, upon recommendation of the independent directors, has nominated
Gerard Guez, Todd Kay, Corazon Reyes, Joseph Mizrachi and Simon Mani to serve as
Class II directors for terms expiring in 2008. The Class I directors are serving
terms that expire in 2007. There is currently one vacancy among the Class I
directors.
Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the nominees named below. If any nominee is unwilling to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. We have no reason to believe that any nominee will be
unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees as Class
II directors:
Gerard Guez
Todd Kay
Corazon Reyes
Joseph Mizrachi
Simon Mani
If elected, the foregoing five nominees are expected to serve until the 2008
Annual Meeting of Shareholders. The five nominees for election as Class II
directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected.
The principal occupation and certain other information about the nominees, other
directors whose terms of office continue after the Annual Meeting and certain
executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
CLASS II DIRECTORS: TERMS EXPIRING IN 2008
GERARD GUEZ Gerard Guez founded the Company in 1988 and
has served as its Chairman of the Board
since its inception and as Chief Executive
Officer from inception until 2001 and again
from March 2003 through August 2004. Mr.
Guez was re-appointed as Interim Chief
Executive Officer, effective March 31, 2006.
Mr. Guez also founded Tarrant Company
Limited ("Tarrant HK"), the Company's Hong
Kong subsidiary, in 1985, and he has served
as its Chairman since inception and Chief
Executive Officer from 1985 through October
2001. Prior to founding Tarrant HK, Mr. Guez
served as the President of Sasson Jeans,
L.A., Inc., which was a manufacturer and
distributor of denim apparel under the
"Sasson" license.
DIRECTOR SINCE: 1988 AGE: 50
TODD KAY Todd Kay has served as our President from
1988 to September 1999 and from March 2000
to August 2003, and has served as Vice
Chairman since September 7, 1999. Mr. Kay
has also served as a director of the Company
since 1988 and as a director of Tarrant HK
since 1986. Prior to joining us, Mr. Kay was
a sales manager for Sasson Jeans, L.A., Inc.
from 1979 to 1980 and served as President of
JAG Beverly Hills, Inc., an apparel
manufacturer, from 1980 to 1985.
DIRECTOR SINCE: 1988 AGE: 49
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CORAZON REYES Corazon Reyes has been a director and has
served as our Chief Financial Officer since
August 2004. Ms. Reyes has held various
positions at Tarrant since its inception in
1988. Ms. Reyes served as Chief Operating
Officer of our Mexico operations from
January 2000 until August 2004. Previously,
Ms. Reyes served as Controller from 1988
until 1994, Chief Operating Officer from
1994 to 1999, and as a director from
inception until 1999. Ms. Reyes has also
served as a director of our Hong Kong
subsidiary since 1988. Ms. Reyes received a
B.S. in Business Administration from the
University of the East in the Philippines
and was a C.P.A. in that country.
DIRECTOR SINCE: 2004 AGE: 61
JOSEPH MIZRACHI Joseph Mizrachi has served as a director of
the Company since June 2001. Since 1982, Mr.
Mizrachi has been engaged in capital funding
to finance buyouts of small and medium size
companies. He has also been the Chairman of
the Board of Midwest Properties Management,
Inc. since 1980, which is engaged in the
management of real estate, and he was
formerly a member of the board of directors
of American Realty Investors Inc. (NYSE) and
he was a director and member of the loan
committee of Heritage Bank in Washington,
DC. Mr. Mizrachi received an undergraduate
degree in Economics and Political Science in
1968 and a Master's degree in Business
Administration in Finance and Marketing in
1971, both from the Hebrew University in
Jerusalem, Israel. He became a member of the
American Society of Chartered Life
Underwriter (CLU) in 1973 and a Chartered
Financial Consultant (CFC) in 1982. In 1978,
he received another Master's degree in
Business Administration and Financial
Counseling (MFS) from The American college
in Bryn Mawr, Pennsylvania.
DIRECTOR SINCE: 2001 AGE: 60
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
SIMON MANI Simon Mani has served as a director of the
company since December 2004. Since 1994, Mr.
Mani has served as General Manager of Mani
Borthers Real Estate Investment Group, a
privately-held real estate investment firm
that owns, renovates, operates, manages, and
leases over 1 million square feet of
commercial property. Previously, Mr. Mani
served as President of the Sara Lee Fresh
division of Sara Lee Bakery from 1992 until
2001. In this position Mr. Mani supervised
over 1,500 employees and managed over 500
distributors. Mr. Mani and his brother
founded the International Baking Company,
which the Manis sold to Sara Lee Bakery in
1992.
DIRECTOR SINCE: 2004 AGE: 54
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
CLASS I DIRECTOR NOMINEES: TERMS EXPIRING IN 2007
STEPHANE FAROUZE Stephane Farouze has served as a director of
the Company since May 2003. Mr. Farouze is
currently a Managing Director of Paradigm
Global Advisors. Previously, from March 2000
to November 2000, Mr. Farouze was employed
as the Global Head of Sales and
Restructuring of Societe General Asset
Management. From March 1998 to February
2000, Mr. Farouze was Head of Foreign
Exchanges for the Italian Market for BNP.
Mr. Farouze received a Bachelor of Science
in Applied Arts and Sciences and a Business
Administration (Finance) degree from San
Diego State University in 1992.
DIRECTOR SINCE: 2003 AGE: 37
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
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MILTON KOFFMAN Milton Koffman was elected as a director of
the Company on November 28, 2001. Since
1997, Mr. Koffman has been the Chairman of
the Board for New Valu, Inc., a multi-
faceted provider of investment capital,
commercial loans and other financial
services for various operating companies.
Additionally, he is a founder and director
of Global Credit Services, a leading
provider of business information and
analysis for manufacturing, financial,
lending and real estate companies. Mr.
Koffman has previously served on the boards
of IEC Electronics, Jayark Corporation,
Sattlers Department Stores, Walter Reed
Theaters, Scoreboard, Inc. and the Gruen
Watch Company. Mr. Koffman received a B.S.
from Ohio State University in 1945.
DIRECTOR SINCE: 2001 AGE: 82
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
MITCHELL SIMBAL Mitchell Simbal has served as a director of
the Company since June 6, 2001. Since 1997,
Mr. Simbal has been Senior Vice President of
Retail Operations for Caesars Entertainment,
which includes Caesars Palace, Paris Las
Vegas, Bally's and Flamingo Hilton. In this
position, Mr. Simbal is responsible for a
$100 million retail division. Mr. Simbal has
a B.S. in accounting from the University of
Hartford.
DIRECTOR SINCE: 2001 AGE: 52
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
OTHER EXECUTIVE OFFICERS
HENRY CHU Henry Chu has served as President of Tarrant
Company Limited, our Hong Kong subsidiary,
since September 2005. Mr. Chu, is also
currently a director of Tarrant HK, a
position he has held since 2002. Prior to
joining TCL, Mr. Chu was the founder and
owner of a garment manufacturing company.
Mr. Chu has over 30 years of experience in
the garment industry.
AGE: 68
CHARLES GHAILIAN Charles Ghailian joined the Company in March
1999 upon acquisition of certain assets of
CMG, Inc., where he served as Chief
Executive Officer since 1988. CMG, Inc.
designed, produced and sold private label
and CHAZZZ branded woven and knit apparel
for women, children and men. He was named
President of Chazzz, a Division of Tag Mex,
Inc., a wholly-owned subsidiary of the
Company. In April 2002, Mr. Ghailian was
appointed President of Tag Mex, Inc. In
addition to managing the day-to-day
operations of Tag Mex, Inc., Mr. Ghailian
oversees developments with certain
customers, including Sears, J.C. Penny and
Mervyn's.
AGE: 53
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FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
MEETINGS AND COMMITTEES. The Board of Directors held 9 meetings during fiscal
2005. The Board of Directors has the following standing committees: Audit
Committee and Compensation Committee. While directors generally attend annual
shareholder meetings, the Company has not established a specific policy with
respect to members of the Board of Directors attending annual meetings.
The Audit Committee currently consists of Messrs. Farouze, Koffman, Mizrachi,
Mani and Simbal, all of whom are considered "independent" under Rule
4200(a)(15)of the National Association of Securities Dealers listing standards.
The Board of Directors has determined that Mitchell Simbal is an audit committee
financial expert, as defined in Item 401(h)(2) of Regulation S-K. The primary
purposes of the Audit Committee are (i) to review the scope of the audit and all
non-audit services to be performed by our independent auditors and the fees
incurred by us in connection therewith, (ii) to review the results of such
audit, including the independent accountants' opinion and letter of comment to
management and management's response thereto, (iii) to review with our
independent accountants our internal accounting principles, policies and
practices and financial reporting, (iv) to engage our independent auditors and
(v) to review our quarterly and annual financial statements prior to public
issuance. The role and responsibilities of the Audit Committee are more fully
set forth in a written Charter adopted by the Board of Directors. The Audit
Committee held 9 meetings during fiscal 2005.
The Compensation Committee currently consists of Messrs. Farouze, Koffman,
Mizrachi, Mani and Simbal. The Compensation Committee is responsible for
considering and making recommendations to the Board of Directors regarding
executive compensation and is responsible for administering the Company's stock
option and executive incentive compensation plans. The Compensation Committee
held 2 meetings during fiscal 2005.
DIRECTOR NOMINATIONS. We do not currently have a standing nominating committee.
The Board of Directors has adopted resolutions requiring that all director
nominations be approved or recommended for approval by a majority of the
independent directors (as defined by Nasdaq), voting in executive session (the
"Independent Board Members").
The Independent Board Members review those directors who are candidates for
re-election to our Board of Directors, and make the determination to nominate a
candidate who is a current member of the Board of Directors for re-election for
the next two-year term. The nominating committee's methods for identifying
candidates for election to the Board of Directors (other than those proposed by
our shareholders, as discussed below) include the solicitation of ideas for
possible candidates from a number of sources--members of the Board of Directors;
our executives; individuals personally known to the members of the Board of
Directors; and other research. We may also from time to time retain one or more
third-party search firms to identify suitable candidates. The Independent Board
Members also nominate outside candidates for inclusion on the Board of
Directors.
A Tarrant shareholder may nominate one or more persons for election as a
director at an annual meeting of shareholders if the shareholder complies with
the notice, information and consent provisions contained in our Bylaws. In
addition, the notice must be made in writing and include (1) the qualifications
of the proposed nominee to serve on the Board of Directors, (2) the principal
occupations and employment of the proposed nominee during the past five years,
(3) directorships currently held by the proposed nominee and (4) a statement
that the proposed nominee has consented to the nomination. The recommendation
should be addressed to our Secretary.
Among other matters, the Independent Board Members:
o Review the desired experience, mix of skills and other
qualities to assure appropriate Board composition, taking into
account the current Board members and the specific needs of
Tarrant and the Board;
o Conduct candidate searches, interview prospective candidates
and conduct programs to introduce candidates to Tarrant, its
management and operations, and confirm the appropriate level
of interest of such candidates;
o Recommend to the Board qualified candidates who bring the
background, knowledge, experience, independence, skill sets
and expertise that would strengthen and increase the diversity
of the Board;
o Conduct appropriate inquiries into the background and
qualifications of potential nominees; and
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o Review the suitability for continued service as a director of
each Board member when he or she has a significant change in
status, such as an employment change, and recommend whether or
not such director should be re-nominated.
Based on the foregoing, the Independent Board Members recommended the nomination
of Gerard Guez, Todd Kay, Corazon Reyes, Joseph Mizrachi and Simon Mani for
re-election as Class II directors to the Board of Directors, subject to
shareholder approval, for a two-year term ending on the date of the 2008 Annual
Meeting.
All directors attended 75% or more of all the meetings of the Board of Directors
and those committees on which he or she served in fiscal 2005.
DIRECTORS' COMPENSATION. The Company pays to each director who is not employed
by the Company $4,000 per month for attending meetings of the Board of Directors
and committees of the Board of Directors, and reimburses such person for all
expenses incurred by him in his capacity as a director of the Company. In
addition, the Chairman of each committee receives $2,000 per year for such
service. The Board of Directors may modify such compensation in the future. In
addition, each director not employed by the Company, upon joining the Board of
Directors, will receive an option to purchase 20,000 shares of our common stock
and, thereafter, an option to purchase 4,000 shares of common stock on the date
of each annual meeting at which such person is reelected to serve as a director.
Such options will have an exercise price equal to the fair market value of such
shares on the date of grant, become exercisable so long as the recipient
continues to serve as a director in four equal annual installments commencing on
the first anniversary of the grant thereof, and expire on the tenth anniversary
of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation
Committee of our Board of Directors currently consists of Messrs. Farouze,
Koffman, Mizrachi, Mani and Simbal. None of these individuals was an officer or
employee of the Company at any time during fiscal 2005. No current executive
officer of the Company has served as a member of the board of directors or
compensation committee of any entity for which a member of our Board of
Directors or Compensation Committee has served as an executive officer.
SHAREHOLDER COMMUNICATIONS. Holders of the Company's securities can send
communications to the Board of Directors via mail or telephone to the Secretary
at the Company's principal executive offices.
CODE OF ETHICS. We have adopted a Code of Ethical Conduct that is applicable to
all of our officers, directors and employees, including our principal executive
officer, principal financial officer, principal accounting officer and persons
performing similar functions. A copy of our Code of Ethical Conduct is filed as
an exhibit to our Annual Report on Form 10-K.
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ITEM 2: ADOPTION OF STOCK INCENTIVE PLAN
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Item 2 is the adoption of Tarrant's 2006 Stock Incentive Plan (the "2006 Plan"),
which authorizes the issuance of up to 5,100,000 shares of Tarrant's common
stock pursuant to options or awards granted under the plan. The proposal to
adopt the 2006 Plan requires the affirmative vote of a majority of the shares of
common stock present or represented and entitled to vote at the Annual Meeting.
A copy of the 2006 Plan is attached to this Proxy Statement as Appendix A.
The 2006 Stock Incentive Plan is designed to assist us in attracting, retaining
and compensating highly qualified individuals and to provide them with a
proprietary interest in our common stock.
No options or awards have been granted under the 2006 Stock Incentive Plan.
SUMMARY OF THE 2006 STOCK INCENTIVE PLAN
ADMINISTRATION. The 2006 Plan will be administered by the Compensation Committee
of the Board of Directors. The Compensation Committee will have the power to
construe and interpret the Employee Incentive Plan and, subject to provisions of
the 2006 Plan, to determine the persons to whom and the dates on which awards
will be granted, the number of shares to be subject to each award, the times
during the term of each award within which all or a portion of such award may be
exercised, the exercise price, the type of consideration and other terms and
conditions of such award. The Compensation Committee is composed solely of
individuals who are "outside directors" within the meaning of the Code and
applicable regulations thereunder, and who otherwise comply with the
requirements of Rule 16b-3 promulgated under the Securities and Exchange Act of
1934. The expenses for administering the 2006 Plan will be borne by the Company.
ELIGIBILITY. Incentive stock options may be granted under the 2006 Plan only to
employees (including directors if they are also employees) of our Company and
our subsidiaries. Employees, directors and independent contractors are eligible
to receive nonstatutory (non-qualified) stock options, stock appreciation
rights, restricted awards, performance awards and other awards under the 2006
Plan.
No incentive stock option may be granted under the 2006 Plan to any person who,
at the time of the grant, owns (or is deemed to own) stock possessing more than
10% of the total combined voting power of our company or any subsidiary, unless
the option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of the grant and the term of the option does
not exceed five years from the date of the grant. In addition, the aggregate
fair market value, determined at the time of the grant, of the shares of common
stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year may not exceed $100,000. The
2006 Plan states that in the case of stock options and stock appreciation
rights, no person may receive in any year a stock option to purchase more than
2,000,000 shares or a stock appreciation right measured by more than 2,000,000
shares.
If awards granted under the 2006 Plan expire, are canceled or otherwise
terminate without being exercised, the common stock not purchased pursuant to
the award again becomes available for issuance under the 2006 Plan.
TERMS OF AWARDS. The following is a description of the types of grants and
awards and the permissible terms under the 2006 Plan. Individual awards may be
more restrictive as to any or all of the permissible terms described below.
o Stock options may be granted as "incentive stock options"
within the meaning of Section 422 of the Code or nonstatutory
(non-qualified) stock options.
o Stock appreciation rights ("SARs") may be granted specifying a
period of time for which increases in share price shall be
measured, with the grantee eligible to receive stock or cash
at the end of the period based upon increases in the share
price.
o Restricted awards may be granted specifying a period of time
(the "restriction period") applicable to the award, which may
vary at the discretion of the Committee. Common stock awarded
pursuant to a restricted
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stock award shall entitle the holder to enjoy all the
shareholder rights during the restriction period except that
certain limitations with respect to dividend distributions and
disposition of the stock shall apply.
o Performance awards may be granted specifying a number of
performance shares to be credited to an account on behalf of
the recipient, each share of which is deemed to be the
equivalent of one share of our common stock. These awards
shall be subject to both time and company performance
objectives that are specified at the time of the award at the
discretion of the Compensation Committee. The value of a
performance share in a holder's account at the time of award
or the time of payment shall be the fair market value at any
time of a share of the common stock.
Other awards may be granted under the 2006 Plan that are not in the categories
discussed above because the 2006 Plan provides the Compensation Committee with
flexibility in designing compensation programs. An award may also consist of one
or more of the categories above or two or more of them in tandem in the
alternative.
EXERCISE PRICE; PAYMENT. The exercise of stock options under the 2006 Plan may
not be less than the fair market value of the common stock subject to the option
on the date of the option grant and in some cases as described above may not be
less than 110% of fair market value. Similarly, SARs are based upon the fair
market value of a share of common stock on the date of the grant compared with
the fair market value of a share at the end of the measuring period. The sole
basis for compensation under these awards is an increase in the stock's fair
market value.
Restricted stock awards are payable in stock upon satisfaction of the
restrictions imposed with respect to the award. The Compensation Committee has
the discretion to pay other awards in cash, in shares of common stock, or a
combination of both.
PERFORMANCE GOALS. The 2006 Plan is structured so that the Compensation
Committee may make awards that qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Code. However, the 2006 Plan is
flexible so that the Compensation Committee also has the discretion to make
awards that are not described in that section. Section 162(m) provides a limit
of $1,000,000 on deductions for compensation paid to certain corporate
executives on a year-by-year basis. However, "performance-based compensation" is
excluded from that limitation. Whether any particular award under the 2006 Plan
will qualify as "performance-based compensation" will depend upon the terms of
the award and compliance with certain other procedural requirements under
Section 162(m). The Compensation Committee will take into account the overall
tax and business objectives of the Company in structuring awards under the 2006
Plan.
TERM. The maximum term of the 2006 Plan is ten years, except that the Board of
Directors may terminate the plan earlier. The term of each individual award will
depend upon the written agreement between us and the grantee setting forth the
terms of the awards. In certain circumstances, an award may remain outstanding
for a period that extends beyond the term of the 2006 Plan or the period of the
grantee's employment.
ADJUSTMENTS. If there is any change in the stock subject to the 2006 Plan or
subject to any award made under the 2006 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in kind, stock split,
liquidating dividend, combination or exchange of shares, change in corporate
structure or otherwise), the 2006 Plan and shares outstanding thereunder will be
appropriately adjusted as to the class and the maximum number of shares subject
to the 2006 Plan and the class, number of shares and price per share of stock
subject to such outstanding options as determined by the Compensation Committee
to be fair and equitable to the holders, the company and our shareholders. In
addition, the Compensation Committee may also make adjustments in the number of
shares covered by, and the price or other value of any outstanding awards under
the 2006 Plan in the event of a spin-off or other distribution (other than
normal cash dividends) of our assets to shareholders.
AMENDMENT. The Board of Directors may amend the 2006 Plan at any time and from
time to time without shareholder approval, except that an amendment may not,
without shareholder approval: (1) increase the number of shares authorized for
issuance under the 2006 Plan except as a result of an adjustment; (2) materially
modify the requirements as to eligibility for participation in the 2006 Plan; or
(3) materially increase the benefits accruing to participants under the 2006
Plan.
10
RESTRICTIONS ON TRANSFER. Under the 2006 Plan, no award shall be transferable by
a holder other than by laws of descent and distribution. Option rights shall be
exercisable during the holder's lifetime only by the holder or by his guardian
or legal representative.
EFFECT OF SECTION 16(B) OF THE SECURITIES EXCHANGE ACT OF 1934. The acquisition
and disposition of common stock by officers, directors and more than 10%
shareholders ("Insiders") pursuant to awards granted to them under the 2006 Plan
may be subject to Section 16(b) of the Securities Exchange Act of 1934. Pursuant
to Section 16(b), a purchase of common stock by an Insider within six months
before or after a sale of common stock by the Insider could result in recovery
by Tarrant of all or a portion of any amount by which the sale proceeds exceed
the purchase price. Insiders are required to file reports of changes in
beneficial ownership under Section 16(a) of the Securities Exchange Act of 1934
upon acquisitions and dispositions of shares. Rule 16b-3 provides an exemption
from Section 16(b) liability for certain transactions pursuant to certain
employee benefit plans. The 2006 Plan is designed to comply with Rule 16b-3.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES FOR STOCK OPTIONS
We anticipate that the vast majority of awards granted by us under the 2006 Plan
will be stock options. The following is a general discussion of the principal
United States federal income tax consequences of both "incentive stock options"
within the meaning of Section 422 of the Code and "non statutory stock options"
based upon the United States Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder, all of which are subject to
modification at any time. The discussion is limited to the tax implications of
stock options, and does not address other types of awards under the plan as we
do not anticipate that other types of awards will be granted frequently, if at
all. The 2006 Plan does not constitute a qualified retirement plan under Section
401(a) of the Code (which generally covers trusts forming part of a stock bonus,
pension or profit sharing plan funded by employer and/or employee contributions
which are designed to provide retirement benefits to participants under certain
circumstances) and is not subject to the Employee Retirement Income Security Act
of 1974 (the pension reform law which regulates most types of privately funded
pension, profit sharing and other employee benefit plans).
CONSEQUENCES TO EMPLOYEES: INCENTIVE STOCK OPTIONS. No income is recognized for
federal income tax purposes by an optionee at the time an incentive stock option
is granted, and, except as discussed below, no income is recognized by an
optionee upon his or her exercise of an incentive stock option. If the optionee
makes no disposition of the common stock received upon exercise within two years
from the date such option was granted or one year from the date such option is
exercised (the "ISO Holding Period Requirements"), the optionee will recognize
long term capital gain or loss when he or she disposes of his or her common
stock. Such gain or loss generally will be measured by the difference between
the exercise price of the option and the amount received for the common stock at
the time of disposition.
If the optionee disposes of the common stock acquired upon exercise of an
incentive stock option without satisfying the ISO Holding Period Requirements,
any amount realized from such "disqualifying disposition" will be taxed at
ordinary income tax rates in the year of disposition to the extent that (1) the
lesser of (a) the fair market value of the shares of common stock on the date
the incentive stock option was exercised or (b) the fair market value of such
shares at the time of such disposition exceeds (2) the incentive stock option
exercise price. Any amount realized upon disposition in excess of the fair
market value of the shares of common stock on the date of exercise will be
treated as long term or short term capital gain depending upon the length of
time the shares have been held.
The use of stock acquired through exercise of an incentive stock option to
exercise an incentive stock option will constitute a disqualifying disposition
if the ISO Holding Period Requirements have not been satisfied.
For alternative minimum tax purposes, the excess of the fair market value of the
shares of common stock as of the date of exercise over the exercise price of the
incentive stock option is included in computing that year's alternative minimum
taxable income. However, if the shares of common stock are disposed of in the
same year, the maximum alternative minimum taxable income with respect to those
shares is the gain on disposition of the shares. There is no alternative minimum
taxable income from a disqualifying disposition in subsequent years.
CONSEQUENCES TO EMPLOYEES: NON STATUTORY STOCK OPTIONS. No income generally is
recognized by a holder of non-statutory stock options at the time non-statutory
stock options are granted under the 2006 Plan. In general, at
11
the time shares of common stock are issued to a holder pursuant to the exercise
of non-statutory stock options, the holder will recognize ordinary income equal
to the excess of the fair market value of the shares on the date of exercise
over the exercise price.
A holder will recognize gain or loss on the subsequent sale of common stock
acquired upon exercise of non-statutory stock options in an amount equal to the
difference between the sales price and the tax basis of the common stock, which
will include the exercise price paid plus the amount included in the holder's
income by reason of the exercise of the non-statutory stock options. Provided
the shares of common stock are held as a capital asset, any gain or loss
resulting from a subsequent sale will be short-term or long-term capital gain or
loss depending upon the length of time the shares have been held.
CONSEQUENCES TO THE COMPANY: INCENTIVE STOCK OPTIONS. We will not be allowed a
deduction for federal income tax purposes at the time of the grant or exercise
of an incentive stock option. There are also no federal income tax consequences
to us as a result of the disposition of common stock acquired upon exercise of
an incentive stock option if the disposition is not a "disqualifying
disposition." At the time of a disqualifying disposition by an optionee, we will
be entitled to a deduction for the amount received by the optionee to the extent
that such amount is taxable to the optionee at ordinary income tax rates.
CONSEQUENCES TO THE COMPANY: NON-STATUTORY STOCK OPTIONS. Generally, we will be
entitled to a deduction for federal income tax purposes in the taxable year in
which the optionee's taxable year of income inclusion ends and in the same
amount as the optionee is considered to have realized ordinary income in
connection with the exercise of non-statutory stock options.
EQUITY COMPENSATION PLAN INFORMATION
For information regarding equity compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for
issuance as of December 31, 2005, see "Executive Compensation - Equity
Compensation Plan Information" below.
REQUIRED VOTE. The approval of the Amendment to the 2006 Stock Incentive Plan
will require the affirmative vote of a majority of the shares of common stock
present or represented and entitled to vote at the Annual Meeting. The Board of
Directors is of the opinion that the 2006 Plan is in the best interests of
Tarrant and its shareholders and recommends a vote for the approval of the 2006
Plan. All Proxies will be voted to approve the 2006 Plan unless a contrary vote
is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
2006 STOCK INCENTIVE PLAN.
12
ITEM 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
Item 3 is the ratification of Singer Lewak Greenbaum & Goldstein LLP ("SLGG") as
our independent registered public accounting firm for the year ending December
31, 2006. SLGG audited our consolidated financial statements for the fiscal year
ended December 31, 2005. The Audit Committee of the Board of Directors
recommended and the Board of Directors has selected, subject to ratification by
a majority vote of the shares of common stock present or represented and
entitled to vote at the Annual Meeting, the firm of SLGG as our independent
registered public accounting firm for the current fiscal year ending December
31, 2006. We anticipate that a representative of SLGG will attend the Annual
Meeting for the purpose of responding to appropriate questions. At the Annual
Meeting, a representative of SLGG will be afforded an opportunity to make a
statement if he or she so desires.
While there is no legal requirement that this proposal be submitted to
shareholders, it will be submitted at the Annual Meeting nonetheless, as the
Board of Directors believes that the selection of auditors to audit our
consolidated financial statements is of sufficient importance to seek
shareholder approval. If the shareholders do not ratify this appointment, other
firms of certified public accountants will be considered by the Board of
Directors upon recommendation of the Audit Committee.
Grant Thornton LLP ("Grant Thornton") served as our principal independent public
accounting firm for the years ended December 31, 2003 and 2004. Grant Thornton
was dismissed on November 17, 2005. Grant Thornton's report on the financial
statements for the fiscal years ended December 31, 2003 and 2004 did not contain
an adverse opinion or a disclaimer of opinion, nor was the report qualified or
modified as to uncertainty, audit scope, or accounting principles. The decision
to change accountants was recommended and approved by the Audit Committee.
During the fiscal years ended December 31, 2003 and 2004, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of Grant Thornton would
have caused it to make reference to the subject matter of the disagreement in
connection with its report.
Other than the following there were no "reportable events," as defined in Item
304(a)(1)(iv) of Regulation S-K of the Securities Exchange Act of 1934, as
amended. As previously disclosed in our Form 10-K/A for the year ended December
31, 2004, as filed with the Securities and Exchange Commission on May 31, 2005,
we restated our audited financial statements following our review of the
accounting treatment of our October 2003 private placement of convertible
preferred stock. After our review, management and the Audit Committee of the
Board of Directors determined to revise our accounting treatment to reflect the
beneficial conversion feature of the convertible preferred stock and to restate
our financial statements for the fiscal years ended December 31, 2003 and 2004.
In light of the restatement, management and Grant Thornton, our independent
accountants, concluded that a material weakness existed in our internal control
over financial reporting. Subsequent to December 31, 2004, we remedied this
material weakness by changing our policies and procedures for accounting for
instruments with convertible features. Specifically, our Chief Financial
Officer, who was hired in the third quarter of 2004, will review and approve the
appropriate accounting for convertible instruments and determine whether any
embedded beneficial conversion feature is required to be recognized and measured
separately.
AUDIT FEES
Fees paid to our principal accountants for audit services, as approved by the
Audit Committee, totaled approximately $483,000 in 2004 and approximately
$563,000 in 2005, including fees associated with the annual audit, the reviews
of the Company's quarterly reports on Form 10-Q, and statutory audits required
internationally.
AUDIT-RELATED FEES
Fees paid to our principal accountants for audit-related services, as approved
by the Audit Committee, totaled $0 in 2004 and $0 in 2005. Audit-related
services principally include due diligence in connection with acquisitions,
accounting consultations and benefit plan audits.
13
TAX FEES
Fees paid to our principal accountants for tax services, including tax
compliance, tax advice and tax planning, as approved by the Audit Committee,
totaled $0 in 2004 and $0 in 2005.
ALL OTHER FEES
There were no fees for any other services provided by our principal accountants
not included above in either 2004 or 2005.
APPROVAL OF NON-AUDIT SERVICES
All non-audit services to be presented to the Audit Committee for pre-approval.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining the principal accountant's independence.
The ratification of SLGG as the Company's independent registered public
accounting firm for the fiscal year ended December 31, 2006 will require the
affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Annual Meeting. All Proxies will be
voted to approve the ratification of the appointment of the independent public
accountants unless a contrary vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS.
14
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, as to the Chief Executive Officer and as to each
of the other four most highly compensated officers whose compensation exceeded
$100,000 during the last fiscal year (the "Named Executive Officers"),
information concerning all compensation paid for services to the Company in all
capacities for each of the three years ended December 31 indicated below.
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- ----------------------------
OTHER ANNUAL NUMBER OF ALL OTHER
NAME FISCAL YEAR SALARY BONUS COMPENSATION SECURITIES COMPENSATION
---- ENDED ------ ----- ------------ UNDERLYING ------------
PRINCIPAL POSITION(1) DECEMBER 31, ($) ($) ($)(2) OPTIONS ($)
------------------------ ------------ --- --- ------ ------- ---
Gerard Guez(3).......... 2005 52,000 -- -- -- --
Interim Chief Executive 2004 50,000 -- -- -- --
Officer and Chairman 2003 211,538 -- -- 1,000,000 --
Todd Kay................ 2005 500,000 -- -- -- --
Vice Chairman 2004 519,231 -- -- -- --
the Board of Directors 2003 500,000 20,000 -- 1,000,000 --
Barry Aved(4)........... 2005 400,000 -- -- -- --
2004 415,385 -- -- 30,000 --
2003 123,077 -- -- 504,000 --
Charles Ghailian(5)..... 2005 383,968 170,000 -- -- --
President of 2004 398,736 170,000 -- -- --
Tag Mex, Inc. 2003 383,968 222,500 -- 25,000 --
Corazon Reyes(6)........ 2005 220,000 -- -- -- --
Chief Financial Officer 2004 181,594 -- -- -- --
2003 148,320 -- -- -- --
Henry Chu............... 2005 278,205 -- -- -- --
President of Tarrant 2004 230,770 -- -- -- --
Company Limited 2003 188,462 -- -- 100,000 --
----------
(1) For a description of the employment contracts between certain officers
and the Company, see "Employment Contracts," below.
(2) Certain of the Company's executive officers receive personal benefits
in addition to salary and cash bonuses, including payment for unused
vacation days, car allowances, living and relocation expenses and
director fees. The aggregate amount of such personal benefits does not
exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for the officer.
(3) Mr. Guez served as the Company's Chief Executive Officer from the
Company's inception until 2001, and from March 2003 through August 2,
2004. Mr. Guez was appointed as Interim Chief Executive Officer on
March 31, 2006.
(4) Mr. Aved was appointed President on September 1, 2003 and was appointed
as Chief Executive Officer on August 2, 2004. Mr. Aved resigned as
Chief Executive Officer and President, effective March 31, 2006.
(5) Mr. Ghailian served as President of Chazzz, a division of Tag Mex,
Inc., a wholly-owned subsidiary of the Company from 1999 until March
2002, and was appointed President of Tag Mex, Inc. on April 1, 2002.
(6) Ms. Reyes was appointed Chief Financial Officer on August 16, 2004.
There were no grants of stock options made during fiscal 2005 to the Named
Executive Officers.
15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for each of the Named Executive Officers,
certain information regarding the exercise of stock options during fiscal 2005,
the number of shares of common stock underlying stock options held at fiscal
year-end and the value of options held at fiscal year-end based upon the last
reported sales price of the common stock on The Nasdaq Stock Market on December
30, 2005 ($1.06 per share)*.
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED DECEMBER 31, 2005 DECEMBER 31, 2005
--------------------- ---------- -------- ----------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Barry Aved........... -- -- 559,000 -- -- --
Gerard Guez.......... -- -- 2,766,668 -- -- --
Todd Kay............. -- -- 2,433,332 -- -- --
Charles Ghailian..... -- -- 197,000 -- -- --
Corazon Reyes........ -- -- 52,000 -- -- --
Henry Chu............ -- -- 100,000 -- -- --
----------
* As reported on Yahoo Finance dated 12-31-05.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment contracts with the following Named
Executive Officer.
We entered into an employment agreement as of September 16, 2005 with Henry Chu,
President of our Hong Kong subsidiary Tarrant Company Limited. This employment
agreement is for a term of three years. Mr. Chu's employment agreement provides
for a monthly salary of HKD200,000 (or approximately US$25,787 per month). The
agreement provides that either party may terminate the agreement provided a 2
month advance written notice is provided to the other party.
EMPLOYEE BENEFIT PLANS
The Company adopted the Tarrant Apparel Group Employee Incentive Plan (the
"Employee Incentive Plan"). Up to 5,100,000 shares of our common stock were
authorized to be issued pursuant to the Employee Incentive Plan. The Employee
Incentive Plan provides for the issuance of incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock and
other performance-based benefits. The purpose of the Employee Incentive Plan is
to enable the Company to attract, retain and motivate officers, directors,
employees and independent contractors by providing for performance-based
benefits. The Employee Incentive Plan is administered by the Compensation
Committee of the Board of Directors. As of December 31, 2005, there were
1,333,050 shares of our common stock subject to outstanding options granted
under the Employee Incentive Plan. The original term of the Employee Incentive
Plan expired in 2005, and therefore no awards may be granted under the Employee
Incentive Plan. In addition, as of December 31, 2005, there were 5,400,000
shares of our common stock subject to outstanding options granted outside of the
Employee of Incentive Plan.
We are presenting the 2006 Stock Incentive Plan for approval of the shareholders
at the Annual Meeting. If adopted, there will be a 5,100,000 shares of our
common stock (subject to adjustment to prevent dilution) available
16
for awards granted under the 2006 Plan. For a description of the materials terms
and provisions of the 2006 Plan, see "Item 2. Adoption of Stock Incentive Plan."
In 1994, the Company adopted a Profit Sharing 401(k) Plan (the "Profit Sharing
Plan") which is intended to be qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended. To be eligible, an employee must have been
employed by the Company for at least one year. The Profit Sharing Plan permits
employees who have completed one year of service to defer from 1% to 15% of
their annual compensation into the Profit Sharing Plan. Additional annual
contributions may be made at the discretion of the Company, and a 50% (100%
effective July 1, 1995) matching contribution may be made by the Company up to a
maximum of 6% (5% effective July 1, 1995) of a participating employee's annual
compensation. Contributions made by the Company vest according to a schedule set
forth in the Profit Sharing Plan.
Tarrant HK has adopted a Mandatory Provident Fund Scheme - AIA-JF Premium MPF
Scheme under the Mandatory Provident Fund Schemes Ordinance, in which the
employees who have joined the Company since December 1, 2000 are eligible to
enroll. Monthly contributions are made based on 5% of the employees' relevant
income.
In addition Tarrant HK has adopted a defined contribution retirement benefits
scheme -the AXA Central Provident Fund Scheme (the "Provident Fund scheme")
which has been approved under Section 87A of the Inland Revenue Ordinance of
Hong Kong since 1992. This scheme has been registered as a Mandatory Provident
Fund exempted Occupational Retirement Schemes Ordinance scheme under the
Mandatory Provident Fund Schemes Ordinance. From August 1992, an employee, upon
completion of one full year's service with Tarrant HK, is entitled to enroll in
the Provident Fund scheme on voluntary basis. Since December 1, 2000, no new
members have been allowed to enroll in this scheme. Monthly contributions are
made based on 5% of the employees' basic salary. The employees having completed
more than 3 years of service with Tarrant HK are entitled to the Company's
vested benefits according the vesting scale of the Provident Fund scheme.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding our equity
compensation plans as of December 31, 2005.
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING REMAINING AVAILABLE FOR
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND FUTURE ISSUANCE UNDER EQUITY
WARRANTS AND RIGHTS RIGHTS COMPENSATION PLANS
----------------------- ------------------------- ----------------------------
Equity compensation
plans approved by
security holders 6,733,050 $6.25 (1)
Equity compensation
plans not approved by
security holders 1,111,732 $4.23 --
----------------------- ------------------------- ----------------------------
Total 7,844,782 $5.96 (1)
----------
(1) No further grants may be made under our existing Employee Incentive
Plan. If the 2006 Stock Incentive Plan is approved shareholders at the
Annual Meeting, a total of 5,100,000 shares of common stock will be
available for issuance under awards granted under the 2006 Plan.
MATERIAL FEATURES OF INDIVIDUAL EQUITY COMPENSATION PLANS NOT APPROVED BY
SHAREHOLDERS
Sanders Morris Harris Inc. acted as placement agent in connection with our
October 2003 private placement financing transaction. As partial consideration
for their services as placement agent, we issued to Sanders Morris Harris a
warrant to purchase 881,732 shares of our common stock at an exercise price of
$4.65 per share. The warrant has a term of 5 years. As of April 17, 2004, the
warrant became fully vested and exercisable.
Sanders Morris Harris Inc. acted as placement agent in connection with our
January 2004 registered sale of 1,200,000 shares of our common stock. As partial
consideration for their services as placement agent, we issued to Sanders Morris
Harris a warrant to purchase 30,000 shares of our common stock at an exercise
price of $3.35 per share. The warrant is fully vested and exercisable and has a
term of five years.
T.R. Winston & Company acted as placement agent in connection our December 2004
private placement financing transaction. As partial consideration for their
services as placement agent, we issued T.R. Winston & Company a warrant to
purchase 200,000 shares our common stock at an exercise price of $2.50 per
share. The warrant has a term of five years. The warrant will become vested and
exercisable on June 14, 2005.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee is charged with the responsibility of administering
all aspects of our executive compensation programs. The Compensation Committee,
which currently is comprised of five independent, non-employee directors also
grants all stock options and otherwise generally administers our stock option
plans. Following review and approval by the Compensation Committee,
determinations pertaining to executive compensation are generally submitted to
the full Board of Directors for approval. In connection with its deliberations,
the Compensation Committee seeks, and is significantly influenced by, the views
of the Chief Executive Officer with respect to appropriate compensation levels
of the other officers.
TOTAL COMPENSATION. It is the philosophy of the Compensation Committee that
executive compensation should be structured to provide an appropriate
relationship between executive compensation and performance of our company and
the share price of our common stock, as well as to attract, motivate and retain
executives of outstanding abilities and experience. Since its inception, we have
maintained the philosophy that executive compensation should be competitive with
that provided by other companies in the apparel industry to assist us in
attracting and retaining qualified executives critical to our long-term success.
18
BASE SALARY. Base salaries are negotiated at the commencement of an executive's
employment or upon renewal of his or her employment agreement, and are designed
to reflect the position, duties and responsibilities of each executive officer,
the cost of living in the area in which the officer is located, and the market
for base salaries of similarly situated executives at other companies engaged in
businesses similar to that of our company. Base salaries may be annually
adjusted in the sole discretion of the Compensation Committee to reflect changes
in any of the foregoing factors.
STOCK INCENTIVE PLAN OPTIONS AND AWARDS. Under our employee equity incentive
plans, the Compensation Committee is authorized to grant any type of award which
might involve the issuance of shares of common stock, options, warrants,
convertible securities, stock appreciation rights or similar rights or any other
securities or benefits with a value derived from the value of the common stock.
The number of options granted to an individual is based upon a number of
factors, including his or her position, salary and performance, and the overall
performance and our stock price.
ANNUAL INCENTIVES. The Compensation Committee believes that executive
compensation should be determined with specific reference to our overall
performance and goals, as well as the performance and goals of the division or
function over which each individual executive has primary responsibility. In
this regard, the Compensation Committee considers both quantitative and
qualitative factors. Quantitative items used by the Compensation Committee in
analyzing our performance include sales and sales growth, results of operations
and an analysis of actual levels of operating results and sales to budgeted
amounts. Qualitative factors include the Compensation Committee's assessment of
such matters as the enhancement of our image and reputation, expansion into new
markets, and the development and success of new products and new marketing
programs.
The Compensation Committee attributes various weights to the qualitative factors
discussed above based upon their perceived relative importance to us at the time
compensation determinations are made. Each executive's performance is evaluated
with respect to each of these factors, and compensation levels are determined
based on each executive's overall performance.
DETERMINATION OF CHIEF EXECUTIVE OFFICER'S COMPENSATION. Barry Aved served as
our Chief Executive Officer during the fiscal year ended December 31, 2005. As
compensation, Mr. Aved received an annual base salary of $400,000 and no cash
bonus during fiscal 2005 and was not granted any additional options to purchase
shares of our common stock. This compensation package was established based upon
a comparative analysis of other similarly situated chief executive officers
conducted by the Compensation Committee.
The Compensation Committee intends to continue its policy of linking executive
compensation with maximizing shareholder returns and corporate performance to
the extent possible through the programs described above.
OMNIBUS BUDGET RECONCILIATION ACT IMPLICATIONS FOR EXECUTIVE COMPENSATION.
Effective January 1, 1994, under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), a public company generally will not be entitled
to a deduction for non-performance-based compensation paid to certain executive
officers to the extent such compensation exceeds $1.0 million. Special rules
apply for "performance-based" compensation, including the approval of the
performance goals by the shareholders of the Company.
All compensation paid to our employees in fiscal 2005 will be fully deductible.
With respect to compensation to be paid to executives in 2006 and future years,
in certain instances such compensation may exceed $1.0 million. However, in
order to maintain flexibility in compensating executive officers in a manner
designed to promote varying corporate goals, the Compensation Committee has not
adopted a policy that all compensation must be deductible.
COMPENSATION COMMITTEE
Stephan Farouze
Milton Koffman
Joseph Mizrachi
Simon Mani
Mitchell Simbal
19
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors, which consists of independent
directors (as that term is defined in Rule 4200(a)(15) of the National
Association of Securities Dealers' Marketplace Rules), has furnished the
following report:
The Audit Committee assists the Board of Directors in overseeing and monitoring
the integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board of Directors. The written
Charter of the Audit Committee was amended by the Board of Directors in 2004 in
light of enhanced audit committee responsibilities resulting from new
legislation and regulatory requirements. The Audit Committee reviews and
reassesses the Charter annually and recommends any changes to the Board of
Directors for approval.
The Audit Committee is responsible for overseeing the Company's overall
financial reporting process. In fulfilling its responsibilities for the
financial statements for fiscal year 2005, the Audit Committee:
- Reviewed and discussed the audited financial statements for the year ended
December 31, 2005 with management and Singer Lewak Greenbaum & Goldstein
LLP, the Company's independent registered public accounting firm;
- Discussed with SLGG the matters required to be discussed by Statement on
Auditing Standards No. 61 relating to the conduct of the audit; and
- Received written disclosures and the letter from SLGG regarding its
independence as required by Independence Standards Board Standard No. 1.
The Audit Committee discussed with the Auditors their independence.
Based on the Audit Committee's review of the audited financial statements and
discussions with management and the Auditors, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2005
for filing with the SEC.
The Audit Committee also considered the status of pending litigation and other
areas of oversight relating to the financial reporting and audit process that
the committee determined appropriate.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining the principal accountant's independence.
AUDIT COMMITTEE
Mitchell Simbal, Chairman
Stephane Farouze
Milton Koffman
Joseph Mizrachi
Simon Mani
20
PERFORMANCE GRAPH
The following graph sets forth the percentage change in cumulative total
shareholder return of our common stock during the five-year period from December
31, 2000 to December 31, 2005, compared with the cumulative returns of the
NASDAQ Stock Market (U.S. Companies) Index and a peer group of companies. The
component entities of the peer group consist of BIB Holdings Limited, Jaclyn
Inc. and Nitches Inc. and were generated by Research Data Group, Inc. The
comparison assumes $100 was invested on December 31, 2000 in our common stock
and in each of the foregoing indices. The stock price performance on the
following graph is not necessarily indicative of future stock price performance.
[PERFORMANCE GRAPH OMITTED)
Cumulative Total Return
--------------------------------------------------------------
12/00 12/01 12/02 12/03 12/04 12/05
TARRANT APPAREL GROUP 100.00 151.17 112.83 99.03 67.31 29.24
NASDAQ STOCK MARKET (U.S.) 100.00 79.08 55.95 83.35 90.64 92.73
PEER GROUP 100.00 9.71 2.229 0.03 0.00 0.00
21
CERTAIN TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Except as disclosed in this Proxy Statement, neither the nominees for election
as directors of the Company, the directors or executive officers of the Company,
nor any shareholder owning more than five percent of the issued shares of the
Company, nor any of their respective associates or affiliates, had any material
interest, direct or indirect, in any material transaction to which the Company
was a party during fiscal 2005, or which is presently proposed.
See "Employment Contracts" for a summary of employment agreements with certain
of our executive officers.
We lease our principal offices and warehouse located in Los Angeles, California
from GET and office space in Hong Kong from Lynx International Limited. GET and
Lynx International Limited are each owned by Gerard Guez, our Chairman of the
Board of Directors, and Todd Kay, our Vice Chairman of the Board of Directors.
We believe, at the time the leases were entered into, the rents on these
properties were comparable to then prevailing market rents. Our Los Angeles
offices and warehouse is leased on a month to month basis. On January 1, 2006,
we entered into a one year lease agreement with Lynx International Limited for
our office space in Hong Kong. We paid $1,019,000 in 2005 in rent for office and
warehouse facilities at these locations.
In February 2004, our Hong Kong subsidiary entered into a 50/50 joint venture
with Auto Enterprises Limited, an unrelated third party, to source products for
Seven Licensing Company, LLC and our private brands subsidiary in mainland
China. On May 31, 2004, after realizing an accumulated loss from the venture of
approximately $200,000 (our share being half), we sold our interest for $1 to
Asia Trading Limited, a company owned by Jacqueline Rose, wife of Gerard Guez.
The venture owed us $221,000 as of December 31, 2004. This amount was repaid in
the first quarter of 2005.
From time to time in the past, we borrowed funds from, and advanced funds to,
Mr. Guez. The greatest outstanding balance of such advances to Mr. Guez during
2005 was approximately $4,766,000. At December 31, 2005, the entire balance due
from Mr. Guez totaling $2.3 million was reflected as a reduction of
shareholders' equity. All advances to, and borrowings from, Mr. Guez bore
interest at the rate of 7.75% during the period. Total interest paid by Mr. Guez
was $209,000 for the year ended December 31, 2005. Mr. Guez paid expenses on our
behalf of approximately $397,000 for the year ended December 31, 2005, which
amounts were applied to reduce accrued interest and principal on Mr. Guez's
loan. These amounts included fuel and related expenses incurred by 477 Aviation,
LLC, a company owned by Mr. Guez, when our executives used this company's
aircraft for business purposes. Since the enactment of the Sarbanes-Oxley Act in
2002, no further personal loans (or amendments to existing loans) have been or
will be made to our executive officers or directors.
On July 1, 2001, we formed an entity to jointly market, share certain risks and
achieve economies of scale with Azteca Production International, Inc.
("Azteca"), called United Apparel Ventures, LLC ("UAV"). Azteca is owned by the
brothers of Gerard Guez, our Chairman. This entity was created to coordinate the
production of apparel for a single customer of our branded business. UAV is
owned 50.1% by Tag Mex, Inc., our wholly owned subsidiary, and 49.9% by Azteca.
Results of the operation of UAV have been consolidated into our results since
July 2001 with the minority partner's share of all gains and loses eliminated
through the minority interest line in our financial statements. Due to the
restructuring of our Mexico operations, we discontinued manufacturing for UAV
customers in the second quarter of 2004. We purchased $135,000 of finished goods
and services from Azteca and its affiliates in the year ended December 31, 2005.
Our total sales of fabric and services to Azteca in 2005 were $88,000.
At December 31, 2005, Messrs. Guez and Kay beneficially owned 590,000 and
1,003,500 shares, respectively, of common stock of Tag-It Pacific, Inc.,
collectively representing 8.7% of Tag-It Pacific's common stock at December 31,
2005. Tag-It Pacific is a provider of brand identity programs to manufacturers
and retailers of apparel and accessories. We purchased $450,000 of trim from
Tag-It Pacific during the year ended December 31, 2005.
We believe that each of the transactions described above has been entered into
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. We have adopted a policy that any transactions between us and any
of our affiliates or related parties, including our executive officers,
directors, the family members of those individuals and any of their affiliates,
must (1) be approved by a majority of the members of the Board of Directors and
by a majority of the disinterested members of the Board of Directors and (2) be
on terms no less favorable to us than could be obtained from unaffiliated third
parties.
22
PRINCIPAL SHAREHOLDERS
The following table sets forth as of March 31, 2006, unless otherwise indicated,
certain information relating to the ownership of our common stock by (i) each of
our directors, (ii) each of our current named executive officers, and (iii) all
of our current named executive officers and directors as a group. Except as
listed below, there are no other persons known to us to the beneficial owner of
more than five percent of the outstanding shares of our common stock. Except as
may be indicated in the footnotes to the table and subject to applicable
community property laws, each such person has the sole voting and investment
power with respect to the shares owned. The address of each person listed is in
care of the Company, 3151 East Washington Blvd., Los Angeles, CA 90023, unless
otherwise set forth below such person's name.
Number of Shares of
Common Stock
Name and Address Beneficially Owned (1) Percent (1)
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Gerard Guez............................ 12,883,084 (2) 38.7%
Todd Kay............................... 4,995,999 (3) 15.2%
Barry Aved............................. 619,000 (4) 2.0%
Corazon Reyes.......................... 284,888 (5) *
Charles Ghailian....................... 197,000 (6) *
Stephane Farouze....................... 100,000 (7) *
Henry Chu ............................. 100,000 (6) *
Milton Koffman......................... 34,000 (8) *
Joseph Mizrachi........................ 28,000 (6) *
Mitchell Simbal........................ 24,000 (6) *
Simon Mani............................. 20,000 (6) --
DIRECTORS AND OFFICERS AS A GROUP
(11 PERSONS)........................ 19,285,971 (9) 52.5%
----------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote
or the power to dispose of the shares). In addition, shares are deemed to
be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person
(and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of common stock
actually outstanding at March 31, 2006. Percentage ownership is based
upon 30,543,763 shares of common stock issued and outstanding as of March
31, 2006.
(2) Includes 461,518 shares held by GKT Investments, LLC, a Delaware limited
liability company owned 100% by Mr. Guez and 2,766,668 shares of common
stock reserved for issuance upon exercise of stock options which are or
will become exercisable on or prior to May 30, 2006. Mr. Guez has pledged
an aggregate of 3,394,851 of such shares to financial institutions to
secure the repayment of loans to Mr. Guez or corporations controlled by
Mr. Guez and has pledged 4,600,000 of such shares to UPS Capital Global
Trade Finance Corporation to secure his guarantee of our repayment of our
debt obligations to UPS.
(3) Includes 2,433,332 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to May 30, 2006. Mr. Kay has pledged an aggregate of 1,115,000 of
such shares to financial institutions to secure the repayment of loans to
Mr. Kay or corporations controlled by the Mr. Kay.
(4) Includes 559,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to May 30, 2006.
(5) Includes 52,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to May 30, 2006.
(6) Consists of shares of common stock reserved for issuance upon exercise of
stock options, which are or will become exercisable on or prior to May
30, 2006.
23
(7) Includes 20,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to May 30, 2006.
(8) Includes 24,000 shares of common stock reserved for issuance upon
exercise of stock options, which are or will become exercisable on or
prior to May 30, 2006.
(9) Includes 6,124,000 shares of common stock reserved for issuance upon
exercise of stock options that are or will become exercisable on or prior
to May 30, 2006.
The information as to shares beneficially owned has been individually furnished
by the respective directors, Named Executive Officers, and other shareholders of
the Company, or taken from documents filed with the SEC.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the SEC. Executive officers, directors and
greater-than-ten percent shareholders are required by SEC regulations to furnish
the Company with all Section 16(a) forms they file. Based solely on its review
of the copies of the forms received by it and written representations from
certain reporting persons that they have complied with the relevant filing
requirements, the Company believes that, during the year ended December 31,
2005, all of the Company's executive officers, directors and greater-than-ten
percent shareholders complied with all Section 16(a) filing requirements.
SHAREHOLDER PROPOSALS
Any shareholder who intends to present a proposal at the 2007 Annual Meeting of
Shareholders for inclusion in the Company's Proxy Statement and Proxy form
relating to such Annual Meeting must submit such proposal to the Company at its
principal executive offices by December 20, 2006. In addition, in the event a
shareholder proposal is not received by the Company by March 2, 2007, the Proxy
to be solicited by the Board of Directors for the 2007 Annual Meeting will
confer discretionary authority on the holders of the Proxy to vote the shares if
the proposal is presented at the 2007 Annual Meeting without any discussion of
the proposal in the Proxy Statement for such meeting.
SEC rules and regulations provide that if the date of the Company's 2007 Annual
Meeting is advanced or delayed more than 30 days from the date of the 2006
Annual Meeting, shareholder proposals intended to be included in the proxy
materials for the 2007 Annual Meeting must be received by the Company within a
reasonable time before the Company begins to print and mail the proxy materials
for the 2007 Annual Meeting. Upon determination by the Company that the date of
the 2007 Annual Meeting will be advanced or delayed by more than 30 days from
the date of the 2006 Annual Meeting, the Company will disclose such change in
the earliest possible Quarterly Report on Form 10-Q.
SOLICITATION OF PROXIES
It is expected that the solicitation of Proxies will be by mail. The cost of
solicitation by management will be borne by the Company. The Company will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their reasonable disbursements in forwarding solicitation material to
such beneficial owners. Proxies may also be solicited by certain of our
directors and officers, without additional compensation, personally or by mail,
telephone, telegram or otherwise.
24
ANNUAL REPORT ON FORM 10-K
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2005, WILL BE
MADE AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, TARRANT APPAREL GROUP, 3151 EAST WASHINGTON BOULEVARD, LOS ANGELES,
CALIFORNIA 90023.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Gerard Guez
-----------------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
3151 East Washington Boulevard
Los Angeles, California 90023
April 10, 2006
25
APPENDIX A
TARRANT APPAREL GROUP
2006 STOCK INCENTIVE PLAN
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, no par value,
of the Company or any security of the Company issued
in substitution, exchange or lieu thereof.
(f) "Company" means Tarrant Apparel Group, a California
corporation, or a Subsidiary or successor
corporation, or any holding company for Tarrant
Apparel Group which is a parent of the Company within
the meaning of Code Section 424(e).
(g) "Date of Grant" means the date the Committee (or the
Board, as the case may be) takes formal action
designating that a Participant shall receive an
Award, notwithstanding the date the Participant
accepts the Award, the date the Company and the
Participant enter into a written agreement with
respect to the Award, or any other date.
(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.
A-1
(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
(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 NASD, 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 2006 Stock
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.
(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.
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(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 "non-employee director" within the
meaning of Rule 16b-3 under the Securities Exchange
Act. 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 "non-employee director" within the meaning
of Rule 16b-3 under the Exchange Act may serve on the
Committee. Appointment to the Committee of any person
who is not an "outside director" and a "non-employee
director" 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 "non-employee
director" for purposes of Rule 16b-3 of the Exchange
Act 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.
(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.
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(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.
(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, Section 409A of the Code
and other applicable provisions of the Code and
applicable Treasury Regulations for Awards that are
intended to qualify under such sections or
regulations, 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 Five Million One
Hundred Thousand (5,100,000).
(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.
(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 Two Million
(2,000,000) 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
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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. 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 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 (but only the extent
permitted by applicable law). 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
Two Million (2,000,000) 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, except that in
no event shall a
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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, provided
that the Committee shall not include any provisions
or take any actions that do not comply with the
timing an specificity requirements of Section 409A of
the Code and the Treasury Regulations or proposed
Treasury Regulations thereunder. 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 (but
only to the extent permitted by applicable law) 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.
(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
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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 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
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time approve. Performance Awards may be granted alone
or in addition to other Awards under the Plan.
Subject to the terms of the Plan, the Committee shall
determine the number of Performance Awards to be
granted to a Participant and the Committee may impose
different terms and conditions on any particular
Performance Award made to any Participant.
(d) PERFORMANCE GOALS AND PERFORMANCE PERIODS.
Performance Awards shall provide that, in order for a
Participant to vest in such Awards, the Company must
achieve certain performance goals ("Performance
Goals") over a designated performance period selected
by the Committee ("Performance Period"). The
Performance Goals and Performance Period shall be
established by the Committee, in its sole and
absolute discretion. The Committee shall establish
Performance Goals for each Performance Period before
the commencement of the Performance Period and while
the outcome is substantially uncertain or at such
other time permitted under Treasury Regulations
Section 1.162-27(e)(2). The Committee shall also
establish a schedule or schedules for such
Performance Period setting forth the portion of the
Performance Award which will be earned or forfeited
based on the degree of achievement of the Performance
Goals actually achieved or exceeded. In setting
Performance Goals, the Committee may use such
measures as return on equity, earnings growth,
revenue growth, 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), provided that the Committee shall not include
any provisions or take any actions that do not comply
with the timing an specificity requirements of
Section 409A of the Code and the regulations or
proposed regulations thereunder. 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.
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
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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.
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
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make future grants of options or rights to employees
of the acquired entity, the aggregate number of
shares of Common Stock available for Awards under
Section 4 of the Plan may be increased accordingly.
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;
(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,
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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.
18. MISCELLANEOUS MATTERS.
(a) TAX WITHHOLDING. The Company shall have the right to
require all Participants or any other person legally
entitled to exercise any Awards to pay the Company
any federal, state, or local taxes of any kind
required by law to be withheld with respect to the
exercise of Awards or the sale of Common Stock issued
hereunder or to take such other action as may be
necessary in the opinion of the Company to satisfy
all obligation for the payment of such taxes. If
Common Stock is used to satisfy tax withholding, such
stock shall be valued based on the Fair Market Value
when the tax withholding is required to be made.
(b) NO RIGHT TO EMPLOYMENT. Neither the adoption of the
Plan nor the granting of any Award shall confer upon
any employee of the Company or any Subsidiary any
right to continued employment with the Company or any
Subsidiary, as the case may be, nor shall it
interfere in any way with the right of the Company or
a Subsidiary to terminate the employment of any of
its employees at any time, with or without cause.
(c) UNFUNDED PLAN. The Plan shall be unfunded and the
Company shall not be required to segregate any assets
that may at any time be represented by Awards under
the Plan. Any liability of the Company to any person
with respect to any Award under the Plan shall be
based solely upon any written contractual obligations
that may be effected pursuant to the Plan. No such
obligation of the Company shall be deemed to be
secured by any pledge of, or other encumbrance on,
any property of the Company.
(d) ANNULMENT OF AWARDS. The grant of any Award under the
Plan payable in cash is provisional until cash is
paid in settlement thereof. The grant of any Award
payable in Common Stock is provisional until the
Participant becomes entitled to the certificate in
settlement thereof. Payment under any Awards granted
pursuant to the Plan is wholly contingent upon
shareholder approval of the Plan. Where approval for
an award sought pursuant to Section 162(m)(4)(C)(ii)
is not granted by the Company's shareholders, the
Award shall be annulled automatically. In the event
the employment of a Participant is terminated for
cause (as defined below), any Award which is
provisional shall be annulled as of the date of such
termination for cause. For purposes of the Plan, the
term "terminated for cause" means any discharge
because of personal 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,
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the determination of benefits under any other
employee benefit plan or similar arrangement provided
by the Company or a Subsidiary unless expressly so
provided by such other plan or arrangement, or except
where the Committee expressly determines that
inclusion of an Award or portion of an Award should
be included. Awards under the Plan may be made in
combination with or in addition to, or as
alternatives to, grants, awards or payments under any
other Company or Subsidiary plans. The Company or any
Subsidiary may adopt such other compensation programs
and additional compensation arrangements (in addition
to this Plan) as it deems necessary to attract,
retain, and 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.
A-13
TARRANT APPAREL GROUP
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of TARRANT APPAREL GROUP, a California
corporation (the "Company"), hereby nominates, constitutes and appoints Gerard
Guez and Corazon Reyes, or either one of them, as proxy of the undersigned, each
with full power of substitution, to attend, vote and act for the undersigned at
the Annual Meeting of Shareholders of the Company, to be held on May 25, 2006,
and any postponements or adjournments thereof, and in connection therewith, to
vote and represent all of the shares of the Company which the undersigned would
be entitled to vote with the same effect as if the undersigned were present, as
follows:
A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Proposal 1. To elect the Board of Directors' five nominees as directors:
Gerard Guez Todd Kay Corazon Reyes Joseph Mizrachi Simon Mani
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to the contrary below)
|_| WITHHELD for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below:)
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The undersigned hereby confer(s) upon the proxies and each of them
discretionary authority with respect to the election of directors in
the event that any of the above nominees is unable or unwilling to
serve.
Proposal 2. To approve the 2006 Stock Incentive Plan, which authorizes the
issuance of up to 5,100,000 shares of common stock pursuant to
awards granted pursuant thereto.
|_| FOR |_| AGAINST |_| ABSTAIN
Proposal 3. To ratify the appointment of Singer Lewak Greenbaum &
Goldstein LLP as the Company's independent public accountants
for the year ending December 31, 2006.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ABOVE OR,
TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A GRANT OF
AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED AT THE
ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting
and accompanying Proxy Statement dated April 10, 2006, relating to the Annual
Meeting.
Dated:___________________________, 2006
Signature:_____________________________
Signature:_____________________________
Signature(s) of Shareholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond
exactly with the name(s) of the
Shareholder(s) appearing on the Share
Certificate. If stock is held jointly, all
joint owners should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If signer is a corporation, please sign the
full corporation name, and give title of
signing officer.
|_| Please indicate by checking this box if you anticipate
attending the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE