PROSPECTUS SUPPLEMENT
Filed pursuant to Rule 424(b)(5)
Registration No. 333-111092
TARRANT APPAREL GROUP
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
We are offering 1,200,000 shares of our common stock at a fixed price
of $3.35 per share through this prospectus supplement and the accompanying
prospectus to certain institutional investors. The gross proceeds from the sale
of these 1,200,000 shares are $4,020,000. After payment of placement agent fees
of 7% of the gross proceeds to Sanders Morris Harris Inc. for its services as
placement agent, we would receive proceeds from the sale of these shares as
follows:
PER
SHARE TOTAL
---------- ----------
Offering Price ................................. $ 3.350 $4,020,000
Placement Agent Fees ........................... $ .235 $ 282,000
Proceeds to Tarrant Apparel Group
(before expenses) ........................... $ 3.115 $3,738,000
We are also offering Sanders Morris Harris Inc. a warrant to purchase
30,000 shares of our common stock through this prospectus supplement and the
accompanying prospectus. The warrant being offered to Sanders Morris Harris Inc.
has an exercise price of $3.35 per share and expires on January 23, 2009. We are
issuing this warrant to Sanders Morris Harris Inc. as partial consideration for
its services as placement agent.
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest in our securities.
Our common stock is traded on the NASDAQ National Market System under
the symbol "TAGS." On January 22, 2004, the last reported sale price of the
common stock on the NASDAQ National Market System was $3.29 per share.
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
----------
[SANDERS MORRIS HARRIS LOGO]
The date of this prospectus is January 23, 2004.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
ABOUT THIS PROSPECTUS SUPPLEMENT.............................................S-3
TARRANT APPAREL GROUP........................................................S-3
THE OFFERING ................................................................S-4
RISK FACTORS.................................................................S-6
FORWARD-LOOKING STATEMENTS...................................................S-6
USE OF PROCEEDS..............................................................S-6
DESCRIPTION OF THE WARRANT...................................................S-7
PLAN OF DISTRIBUTION.........................................................S-9
WHERE YOU CAN FIND MORE INFORMATION.........................................S-11
LEGAL MATTERS...............................................................S-12
EXPERTS.....................................................................S-12
PROSPECTUS
ABOUT THIS PROSPECTUS..........................................................3
TARRANT APPAREL GROUP..........................................................3
RISK FACTORS...................................................................4
FORWARD-LOOKING STATEMENTS....................................................10
USE OF PROCEEDS...............................................................10
DILUTION......................................................................10
DESCRIPTION OF THE COMMON STOCK AND PREFERRED STOCK WE MAY OFFER..............11
DESCRIPTION OF THE WARRANTS WE MAY OFFER......................................15
PLAN OF DISTRIBUTION..........................................................16
WHERE YOU CAN FIND MORE INFORMATION...........................................17
LEGAL MATTERS.................................................................18
EXPERTS.......................................................................18
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN ITS DATE,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS OR ANY SALE OF COMMON STOCK OR ISSUANCE OF WARRANTS.
This prospectus supplement and the accompanying prospectus are offers
to sell and solicitations of offers to buy the securities offered by this
prospectus supplement only in jurisdictions where the offers or sales are
permitted.
In this prospectus supplement, "Tarrant Apparel Group," "we," "us" and
"our" refer to Tarrant Apparel Group and do not refer to the placement agent in
connection with this offering.
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are part of
a Registration Statement on Form S-3 that we filed with the Securities and
Exchange Commission utilizing a "shelf" registration process. Under this shelf
process, we may sell common stock, preferred stock and warrants for equity
securities from time to time in one or more offerings up to an aggregate initial
public offering price of $20,000,000. This prospectus supplement describes the
specific details regarding this offering, including the price, the amount of
common stock and warrants being offered, the risks of investing in our
securities and the placement agent arrangements. The accompanying prospectus
provides general information about us, some of which, such as the section
entitled "Plan of Distribution," may not apply to this offering. If information
in this prospectus supplement is inconsistent with the accompanying prospectus
or the information filed with the SEC prior to the date of this prospectus
supplement and incorporated herein by reference, you should rely on this
prospectus supplement. You should read both this prospectus supplement and the
accompanying prospectus together with the additional information about Tarrant
Apparel Group described in this prospectus supplement in the section entitled
"Where You Can Find More Information."
TARRANT APPAREL GROUP
Tarrant Apparel Group is a leading provider of apparel, serving
specialty retailers, mass merchandisers and department store chains and major
international brands located primarily in the United States by designing,
merchandising, contracting for the manufacture of, and selling primarily casual,
moderately-priced apparel for women, men and children. Our major customers
include specialty retailers, such as Express, a division of The Limited, as well
as Lane Bryant, Lerner New York, Wet Seal, Federated Department Stores, J.C.
Penney, K-Mart, Kohl's, Mervyns, Sears and Wal-Mart. Our products are
manufactured in a variety of woven and knit fabrications and include jeans wear,
casual pants, t-shirts, shorts, blouses, shirts and other tops, dresses and
jackets.
We were incorporated in California in September 1988. Our executive
offices are located at 3151 East Washington Boulevard, Los Angeles, California
90023, and our telephone number is (323) 780-8250. Information on our website,
www.tags.com, does not constitute part of this prospectus.
S-3
THE OFFERING
The following summary highlights selected information about the terms
of our common stock, the warrants and the common stock issuable upon exercise of
the warrants. For a more detailed description of our common stock, see
"Description of the Common Stock and Preferred Stock We May Offer" and
"Description of the Warrants We May Offer" in the accompanying prospectus, and
"Description of the Warrant" in this prospectus supplement.
Issuer Tarrant Apparel Group
Common stock offered by us 1,200,000 shares
Warrant offered to Sanders The warrant being offered to Sanders
Morris Harris Inc. Morris Harris Inc. is initially
exercisable for an aggregate of 30,000
shares of our common stock, subject to
adjustment as described below under
"Adjustment of warrant."
Expiration of warrant The warrant being offered to Sanders
Morris Harris Inc. is scheduled to expire
at 5:00 p.m. Los Angeles time on January
23, 2009.
Exercise of warrant The warrant being offered to Sanders
Morris Harris Inc. is initially
exercisable at an exercise price of $3.35
per share, subject to adjustment as
described below under "Adjustment of
warrants."
Adjustment of warrant The number of shares of common stock for
which, and the price per share at which,
the warrant being offered to Sanders
Morris Harris Inc. is exercisable are
subject to adjustment in case we (1) pay a
dividend in shares of common stock, (2)
subdivide our outstanding shares of common
stock into a greater number of shares, (3)
combine our outstanding common stock into
a smaller number of shares of common
stock, or (4) issue any shares of common
stock in a reclassification of our common
stock, in each case as described in the
Common Stock Purchase Warrant to be
entered into between us and Sanders Morris
Harris Inc.
Transfer of warrant The warrant being offered to Sanders
Morris Harris Inc. will be freely
transferable (subject to the one-year
transfer restrictions imposed by the
National Association of Securities
Dealers, Inc.). See "Description of
Warrant--Transferability."
Listing of common stock Our common stock is listed on the NASDAQ
and warrant National Market System under the symbol
"TAGS." The warrant being offered to
Sanders Morris Harris Inc. is not listed
on NASDAQ or any other securities exchange
and we do not intend to arrange for any
exchange or quotation system or automated
quotation system to list or quote the
warrant.
S-4
Common stock to be outstanding 28,814,763 shares, including 1,200,000
after this offering* shares being purchased immediately by the
institutional investors, but excluding the
30,000 shares underlying the warrant to be
offered to Sanders Morris Harris Inc.
Dividend policy We have not paid any cash dividends on our
common stock in the past and do not
anticipate paying any cash dividends on
our common stock in the foreseeable
future.
Use of proceeds We intend to use the net proceeds from the
sale of common stock in this offering for
working capital and other general
corporate purposes.
There can be no assurance that the warrant
being offered to Sanders Morris Harris
Inc. will be exercised before it expires
or that we will receive any proceeds from
the offering of the warrant. Even if the
warrant is exercised, we cannot predict
when such exercise will occur and when any
proceeds will be received.
----------------
* The number of shares of common stock to be outstanding after this
offering is based on 27,614,763 shares outstanding on the date of this
prospectus supplement, and does not include:
o an aggregate of 9,880,069 shares of common stock issuable upon
exercise of options and warrants (including the warrant to be
offered to Sanders Morris Harris Inc.) outstanding as of the
date of this prospectus supplement, at weighted average
exercise prices of $6.88 per share; and
o 1,531,663 shares available for grant as of the date of this
prospectus supplement under our stock option plans.
S-5
RISK FACTORS
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 4
OF THE ACCOMPANYING PROSPECTUS IN CONJUNCTION WITH THE OTHER INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS BEFORE MAKING A DECISION TO PURCHASE OUR SECURITIES.
ALSO CONSIDER CAREFULLY THE STATEMENTS UNDER "FORWARD-LOOKING STATEMENTS." IF
ANY OF THE RISKS DESCRIBED IN THE ACCOMPANYING PROSPECTUS OR OTHER INFORMATION
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF
OPERATIONS WOULD LIKELY MATERIALLY SUFFER. IF THIS OCCURS, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU
PAID TO BUY OUR SECURITIES.
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus and the
information incorporated by reference into this prospectus supplement and the
accompanying prospectus contain statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, both as amended. These forward-looking
statements are subject to various risks and uncertainties. The forward-looking
statements include, without limitation, statements regarding our future business
plans and strategies and our future financial position or results of operations,
as well as other statements that are not historical. You can find many of these
statements by looking for words like "will", "may", "believes", "expects",
"anticipates", "plans" and "estimates" and for similar expressions. Because
forward-looking statements involve risks and uncertainties, there are many
factors that could cause the actual results to differ materially from those
expressed or implied. These include, but are not limited to, economic
conditions. Any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this prospectus supplement and the
accompanying prospectus and the information incorporated by reference into this
prospectus supplement and the accompanying prospectus contain, for the reasons,
among others, described in the Risk Factors section of this prospectus
supplement beginning on page S-6. You should read the Risk Factors section
carefully, and should not place undue reliance on any forward-looking
statements, which speak only as of the date of this prospectus supplement. We
undertake no obligation to release publicly any updated information about
forward-looking statements to reflect events or circumstances occurring after
the date of this prospectus supplement or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares in this
offering will be approximately $3,688,000, after deducting placement agent fees
of $282,000 and estimated expenses of $50,000. There can be no assurance that
the warrant offered to Sanders Morris Harris Inc. will be exercised before it
expires or that we will receive any proceeds from the offering of the warrant.
Even if the warrant is exercised, we cannot predict when such exercise will
occur and when any proceeds will be received.
We intend to use any net proceeds from the sale of securities offered
by this prospectus supplement and the accompanying prospectus for working
capital and other general corporate purposes. Pending any of these uses, we
intend to invest the net proceeds of this offering in short-term,
interest-bearing instruments or other investment-grade securities. We will
retain broad discretion in allocating the net proceeds of this offering.
S-6
DESCRIPTION OF THE WARRANT
GENERAL
The terms of the warrant will be set forth in a Common Stock Purchase
Warrant between us and Sanders Morris Harris Inc. The description of the terms
of the warrant below is qualified in all respects by reference to the terms of
the Common Stock Purchase Warrant, which is being incorporated by reference in
this prospectus supplement. A warrant does not entitle the holder to any rights
as a shareholder of Tarrant Apparel Group or to receive any dividends paid on
the common stock.
WARRANT OFFERED TO SANDERS MORRIS HARRIS INC.
The warrant offered to Sanders Morris Harris Inc. is initially
exercisable for up to an aggregate of 30,000 shares of common stock (one share
for every 40 shares sold in this offering) at an exercise price of $3.35 per
share of common stock, subject to adjustment as described below under
"Adjustments." The warrant provides that the exercise price may be paid by wire
transfer or cashier's check. The warrant also may be exercised on a cashless
basis.
FRACTIONAL SHARES
No fractional shares of common stock will be issued in connection with
the exercise of the warrant. As to any fractional share to which the holder of
the warrant would otherwise be entitled, we will pay the holder an amount in
cash equal to the fractional amount multiplied by the exercise price.
EXPIRATION
The warrant will expire at 5:00 p.m. Los Angeles time on January 23,
2009.
ADJUSTMENTS
The number of shares of common stock for which, and the price per share
at which, the warrant is exercisable are subject to adjustment in case we (1)
pay a dividend in shares of common stock, (2) subdivide our outstanding shares
of common stock into a greater number of shares, (3) combine our outstanding
common stock into a smaller number of shares of common stock, or (4) issue any
shares of common stock in a reclassification of our common stock, in each case
as provided in the Common Stock Purchase Warrant.
TRANSFERABILITY
The warrant will be freely transferable by Sanders Morris Harris Inc.
upon surrender of the warrant at our principal executive offices, together with
a written assignment in the form attached thereto and any funds necessary to pay
any transfer taxes payable upon the transfer; PROVIDED, HOWEVER, for a period of
one-year following the date of issuance, the warrant to be offered to Sanders
Morris Harris Inc., and any shares of common stock issued upon exercise of the
warrant, will be subject to transfer restrictions imposed by the regulations of
the National Association of Securities Dealers, Inc. ("NASD"), and the warrant
will contain a restrictive legend to this effect. The NASD restrictions
generally prohibit the transfer of the warrant, and of any shares of common
stock issued upon exercise of the warrant, other than to bona fide officers and
partners of Sanders Morris Harris Inc.
S-7
LISTING
The warrant will not be listed on the NASDAQ National Market System or
any other securities exchange or automated quotation system and we do not intend
to arrange for any exchange or quotation system to list or quote the warrant.
RESERVATION OF SHARES
We have authorized and reserved for issuance a number of shares of
common stock as are issuable upon the exercise of the warrant. The common stock
issued upon exercise of the warrant, when paid for and issued, will be duly and
validly issued, fully paid and non-assessable.
S-8
PLAN OF DISTRIBUTION
PLACEMENT AGENT AGREEMENT
Pursuant to a placement agent agreement dated January 23, 2004, we
engaged Sanders Morris Harris Inc., or "SMH," to act as our non-exclusive
placement agent in connection with the offering described in this prospectus
supplement, which is being conducted under our shelf registration statement, of
which this prospectus supplement is a part. SMH is a registered broker dealer
and NASD member firm with its principal office located at 600 Travis, Suite
3100, Houston, Texas 77002. Under the terms of the placement agent agreement,
SMH has agreed to use its best efforts in connection with the issuance and sale
by us of the shares in this offering. The placement agent agreement does not
give rise to any commitment by SMH to purchase any securities, and SMH will have
no authority to bind us by virtue of the placement agent agreement. Under the
placement agent agreement, the obligations of SMH are subject to normal and
customary closing conditions. We have agreed to indemnify SMH against certain
liabilities arising in connection with the engagement, including liabilities
under federal securities laws, or to contribute to payments SMH may be required
to make because of these liabilities.
SMH has performed investment banking and financial advisory services
and participated in the private placement of equity securities for us for which
they have received customary fees and reimbursement of their out-of-pocket
expenses. SMH may, from time to time, in the future engage in transactions with,
or perform services for, us and our affiliates in the ordinary course of
business.
THE OFFERING
In this transaction, we are directly selling to certain institutional
investors, 1,200,000 shares of our common stock at a fixed price of $3.35 per
share.
The shares of common stock sold in this offering will be quoted on the
Nasdaq National Market.
It is possible that not all of the shares of our common stock offered
pursuant to this prospectus supplement will be sold at the closing, in which
case our net proceeds would be reduced.
In connection with the offering, SMH may engage in transactions that
stabilize, maintain, or otherwise affect the market price of our common stock.
Any of these activities may maintain the market price of our common stock at a
level above that which might otherwise prevail in the open market. The placement
agent is not required to engage in these activities and, if commenced, may end
any of these activities at any time. In connection with this offering, SMH may
distribute prospectuses electronically.
COMMISSIONS, FEES AND EXPENSES OF THE OFFERING
We have agreed to pay SMH a placement fee of 7% of the gross proceeds
of this offering. We will also issue to SMH as partial consideration for its
services as placement agent a warrant to purchase 30,000 shares (one share of
common stock for every 40 shares sold in this offering) of our common stock at
an exercise price of $3.35 per share, payable in cash. The warrant also may be
exercised on a cashless basis. The warrant will have a term of five years. The
warrant will be freely transferable by SMH; provided, however, the warrant and
any shares of common stock issued upon exercise of the warrant, may not be sold,
transferred, assigned, or hypothecated for a period of one year from the date of
issuance except to officers or partners (not directors) of SMH. See "Description
of Warrant--Transferability."
We have also agreed to reimburse SMH for up to $30,000 of reasonable
out-of-pocket expenses incurred in connection with this offering, subject to the
limitation on the amount of reimburseable expenses set forth below.
S-9
The following table shows the placement agent fee (excluding the
warrant to be offered to SMH) to be paid by us in connection with this offering,
per share of common stock and in total:
PER SHARE TOTAL
--------- --------
Placement Agent Fee ....................... $ .235 $282,000
We estimate that the total expenses of the offering, excluding
placement agent fees, will be $50,000. This estimate includes expenses related
to the filing of this prospectus supplement, printing costs, transfer agent
fees, and our legal and accounting fees and costs.
The maximum commission or discount (including reimbursable expenses and
the value of any warrant received by the member or broker-dealer) to be received
by any NASD member or independent broker-dealer in connection with any offering
of securities under this prospectus supplement will not exceed 8.0% of the gross
proceeds of the offering.
S-10
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the SEC with
respect to the common stock offered by this prospectus supplement and the
accompanying prospectus. This prospectus supplement and the accompanying
prospectus, which constitute a part of the registration statement, do not
contain all of the information set forth in the registration statement or the
exhibits and schedules that are part of the registration statement. You may read
and copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. We refer you to the registration statement
and the exhibits and schedules thereto for further information with respect to
us and our common stock. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Our SEC filings are also available to
the public from the SEC's website at www.sec.gov.
We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934 and, in accordance with those
requirements, will continue to file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's website referred to above.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. We incorporate by reference the documents listed
below and any additional documents filed by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities is terminated. The information we incorporate by reference is an
important part of this prospectus supplement, and any information that we file
later with the SEC will automatically update and supersede this information.
The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the year ended December 31,
2002 (File No. 000-26430);
2. Our Amendment No. 1 to our Annual Report on Form 10-K for the
year ended December 31, 2002, as filed on May 15, 2003 (File
No. 000-26430)
3. Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2003 (File No. 000-26430);
4. Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2003 (File No. 000-26430);
5. Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (File No. 000-26430);
6. Our Current Report on Form 8-K as filed on April 4, 2003 (File
No. 000-26430);
7. Our Current Report on Form 8-K as filed on May 16, 2003 (File
No. 000-26430);
8. Our Current Report on Form 8-K as filed on July 10, 2003 (File
No. 000-26430);
9. Our Current Report on Form 8-K as filed on August 18, 2003
(File No. 000-26430);
10. Our Current Report on Form 8-K as filed on October 27, 2003
(File No. 000-26430);
11. Our Current Report on Form 8-K as filed on November 14, 2003
(File No. 000-26430);
12. Our Current Report on Form 8-K as filed on November 21, 2003
(File No. 000-26430);
13. Our Current Report on Form 8-K as filed on December 10, 2003
(File No. 000-26006);
S-11
14. Our Current Report on Form 8-K/A as filed on December 12, 2003
(File No. 000-26006);
15. The description of the Common Stock of the Registrant
contained in the Registrant's Registration Statements on Form
8-A as filed on May 4, 1995 (File No. 000-26006) and November
21, 2003 (File No. 000-26006), including any amendment or
report filed for the purpose of updating such description; and
16. All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since December
31, 2002, including all such reports filed after the date of
the initial registration statement and prior to effectiveness
of the registration statement.
You may request a copy of these filings, at no cost, by writing or
calling us at Tarrant Apparel Group, 3151 East Washington Boulevard, Los
Angeles, California 90023, telephone number (323) 780-8250, Attention: Patrick
Chow.
You should rely only on the information contained in this prospectus or
any supplement and in the documents incorporated by reference above. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement or in the
documents incorporated by reference is accurate on any date other than the date
on the front of those documents.
LEGAL MATTERS
Stubbs Alderton & Markiles, LLP, Encino, California, has rendered to
Tarrant Apparel Group a legal opinion as to the validity of the common stock and
warrants offered pursuant to this prospectus supplement. Certain legal matters
with respect to the legality of the common stock being offered will be passed
upon for the placement agent by Thompson & Knight, LLP, Houston, Texas.
EXPERTS
The consolidated financial statements of Tarrant Apparel Group
appearing in Tarrant Apparel Group's Annual Report (Form 10-K) for the year
ended December 31, 2002 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
S-12
PROSPECTUS $20,000,000
TARRANT APPAREL GROUP
COMMON STOCK
PREFERRED STOCK
WARRANTS
----------
This prospectus relates to common stock, preferred stock and warrants
for equity securities which we may sell from time to time in one or more
offerings up to an aggregate initial public offering price of $20,000,000. We
will provide specific terms of these sales in supplements to this prospectus.
You should read this prospectus and each supplement carefully before you invest.
This prospectus may not be used to offer and sell securities unless accompanied
by a prospectus supplement.
We currently have an effective registration statement on Form S-3 (File
No. 333-110090) relating to the offer and sale of up to 11,423,052 shares of our
common stock by the selling shareholders named in the prospectus included in
that registration statement. The offer and sale by Tarrant of the securities
described in this prospectus and any prospectus supplement is not related to the
offer and sale by the selling shareholders of their shares of our common stock.
Our common stock is traded on the NASDAQ National Market System under
the symbol "TAGS." On December 10, 2003, the last reported sale price of the
common stock on the NASDAQ National Market System was $3.90 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
----------
The date of this prospectus is December 23, 2003.
TABLE OF CONTENTS
PAGE
----
ABOUT THIS PROSPECTUS..........................................................3
TARRANT APPAREL GROUP..........................................................3
RISK FACTORS...................................................................4
FORWARD-LOOKING STATEMENTS....................................................10
USE OF PROCEEDS...............................................................10
DILUTION......................................................................11
DESCRIPTION OF THE COMMON STOCK AND PREFERRED STOCK WE MAY OFFER..............11
DESCRIPTION OF THE WARRANTS WE MAY OFFER......................................15
PLAN OF DISTRIBUTION..........................................................16
WHERE YOU CAN FIND MORE INFORMATION...........................................17
LEGAL MATTERS.................................................................18
EXPERTS.......................................................................18
2
ABOUT THIS PROSPECTUS
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the Securities and Exchange Commission utilizing a "shelf"
registration process. Under this shelf process, we may sell common stock,
preferred stock and warrants for equity securities from time to time in one or
more offerings up to an aggregate initial public offering price of $20,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell any securities under this prospectus, we will provide a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
below under the heading "Where You Can Find More Information."
TARRANT APPAREL GROUP
Tarrant Apparel Group is a leading provider of apparel, serving
specialty retailers, mass merchandisers and department store chains and major
international brands located primarily in the United States by designing,
merchandising, contracting for the manufacture of, and selling primarily casual,
moderately-priced apparel for women, men and children. Our major customers
include specialty retailers, such as Express, a division of The Limited, as well
as Lane Bryant, Lerner New York, Wet Seal, Federated Department Stores, J.C.
Penney, K-Mart, Kohl's, Mervyns, Sears and Wal-Mart. Our products are
manufactured in a variety of woven and knit fabrications and include jeans wear,
casual pants, t-shirts, shorts, blouses, shirts and other tops, dresses and
jackets.
We were incorporated in California in September 1988. Our executive
offices are located at 3151 East Washington Boulevard, Los Angeles, California
90023, and our telephone number is (323) 780-8250. Information on our website,
www.tags.com, does not constitute part of this prospectus.
3
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO
BUY OUR SECURITIES. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE MATERIAL
ONES FACING OUR COMPANY. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IF
THIS OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR SECURITIES.
RISKS ASSOCIATED WITH THIS OFFERING
-----------------------------------
INSIDERS OWN A SIGNIFICANT PORTION OF OUR COMMON STOCK, WHICH COULD LIMIT OUR
SHAREHOLDERS' ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS.
As of December 10, 2003, our executive officers and directors and their
affiliates owned approximately 30.2% of the outstanding shares of our common
stock. Gerard Guez, our Chief Executive Officer and Chairman, and Todd Kay, our
President and Vice Chairman, alone own approximately 20.4% and 9.4%,
respectively, of the outstanding shares of our common stock at December 10,
2003. Accordingly, our executive officers and directors have the ability to
affect the outcome of, or exert considerable influence over, all matters
requiring shareholder approval, including the election and removal of directors
and any change in control. This concentration of ownership of our common stock
could have the effect of delaying or preventing a change of control of us or
otherwise discouraging or preventing a potential acquirer from attempting to
obtain control of us. This, in turn, could have a negative effect on the market
price of our common stock. It could also prevent our shareholders from realizing
a premium over the market prices for their shares of common stock.
WE HAVE ADOPTED A NUMBER OF ANTI-TAKEOVER MEASURES THAT MAY DEPRESS THE PRICE OF
OUR COMMON STOCK.
Our shareholders rights plan, our ability to issue additional shares of
preferred stock and some provisions of our articles of incorporation and bylaws
could make it more difficult for a third party to make an unsolicited takeover
attempt of us. These anti-takeover measures may depress the price of our common
stock by making it more difficult for third parties to acquire us by offering to
purchase shares of our stock at a premium to its market price.
OUR STOCK PRICE HAS BEEN VOLATILE.
Our common stock is quoted on the NASDAQ National Market System, and
there can be substantial volatility in the market price of our common stock. The
market price of our common stock has been, and is likely to continue to be,
subject to significant fluctuations due to a variety of factors, including
quarterly variations in operating results, operating results which vary from the
expectations of securities analysts and investors, changes in financial
estimates, changes in market valuations of competitors, announcements by us or
our competitors of a material nature, loss of one or more customers, additions
or departures of key personnel, future sales of common stock and stock market
price and volume fluctuations. In addition, general political and economic
conditions such as a recession, or interest rate or currency rate fluctuations
may adversely affect the market price of our common stock.
In addition, the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price of our common stock.
Often, price fluctuations are unrelated to operating performance of the specific
companies whose stock is affected. In the past, following periods of volatility
in the market price of a company's stock, securities class action litigation has
occurred against the issuing company. If we were subject to this type of
litigation in the future, we could incur substantial costs and a diversion of
our management's attention and resources, each of which could have a
4
material adverse effect on our revenue and earnings. Any adverse determination
in this type of litigation could also subject us to significant liabilities.
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO YOU.
Some investors favor companies that pay dividends, particularly in
general downturns in the stock market. We have not declared or paid any cash
dividends on our common stock. We currently intend to retain any future earnings
for funding growth, and we do not currently anticipate paying cash dividends on
our common stock in the foreseeable future. Additionally, we cannot pay
dividends on our common stock unless the terms of our bank credit facilities and
outstanding preferred stock, if any, permit the payment of dividends on our
common stock. Because we may not pay dividends, your return on this investment
likely depends on your selling our stock at a profit.
RISKS RELATED TO OUR BUSINESS
-----------------------------
WE DEPEND ON A GROUP OF KEY CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR SALES. A
SIGNIFICANT ADVERSE CHANGE IN A CUSTOMER RELATIONSHIP OR IN A CUSTOMER'S
FINANCIAL POSITION COULD HARM OUR BUSINESS AND FINANCIAL CONDITION.
Express (a division of The Limited) accounted for approximately 13.5%
and 10.2% of our net sales for the first nine months of 2003 and 2002,
respectively. Lane Bryant accounted for 12.2% and 20% of our net sales for the
first nine months of 2003 and 2002, respectively. Lerner New York accounted for
7.2% and 10.7% of our net sales for the first nine months of 2003 and 2002,
respectively. We believe that consolidation in the retail industry has
centralized purchasing decisions and given customers greater leverage over
suppliers like us, and we expect this trend to continue. If this consolidation
continues, our net sales and results of operations may be increasingly sensitive
to deterioration in the financial condition of, or other adverse developments
with, one or more of our customers.
While we have long-standing customer relationships, we do not have
long-term contracts with any of them, including Express. Purchases generally
occur on an order-by-order basis, and relationships exist as long as there is a
perceived benefit to both parties. A decision by a major customer, whether
motivated by competitive considerations, financial difficulties, and economic
conditions or otherwise, to decrease its purchases from us or to change its
manner of doing business with us, could adversely affect our business and
financial condition. In addition, during recent years, various retailers,
including some of our customers, have experienced significant changes and
difficulties, including consolidation of ownership, increased centralization of
purchasing decisions, restructurings, bankruptcies and liquidations.
These and other financial problems of some of our retailers, as well as
general weakness in the retail environment, increase the risk of extending
credit to these retailers. A significant adverse change in a customer
relationship or in a customer's financial position could cause us to limit or
discontinue business with that customer, require us to assume more credit risk
relating to that customer's receivables, limit our ability to collect amounts
related to previous purchases by that customer, or result in required prepayment
of our receivables securitization arrangements, all of which could harm our
business and financial condition.
FAILURE TO MANAGE OUR GROWTH AND EXPANSION COULD IMPAIR OUR BUSINESS.
Since our inception, we have experienced periods of rapid growth. No
assurance can be given that we will be successful in maintaining or increasing
our sales in the future. Any future growth in sales will require additional
working capital and may place a significant strain on our management, management
information systems, inventory management, production capability, distribution
facilities and receivables management. Any disruption in our order processing,
sourcing or distribution systems could cause orders
5
to be shipped late, and under industry practices, retailers generally can cancel
orders or refuse to accept goods due to late shipment. Such cancellations and
returns would result in a reduction in revenue, increased administrative and
shipping costs and a further burden on our distribution facilities.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
We have experienced, and expect to continue to experience, substantial
variations in our net sales and operating results from quarter to quarter. We
believe that the factors which influence this variability of quarterly results
include the timing of our introduction of new product lines, the level of
consumer acceptance of each new product line, general economic and industry
conditions that affect consumer spending and retailer purchasing, the
availability of manufacturing capacity, the seasonality of the markets in which
we participate, the timing of trade shows, the product mix of customer orders,
the timing of the placement or cancellation of customer orders, the weather,
transportation delays, quotas, the occurrence of charge backs in excess of
reserves and the timing of expenditures in anticipation of increased sales and
actions of competitors. Due to fluctuations in our revenue and operating
expenses, we believe that period-to-period comparisons of our results of
operations are not a good indication of our future performance. It is possible
that in some future quarter or quarters, our operating results will be below the
expectations of securities analysts or investors. In that case, our stock price
could fluctuate significantly or decline.
INCREASES IN THE PRICE OF RAW MATERIALS OR THEIR REDUCED AVAILABILITY COULD
INCREASE OUR COST OF SALES AND DECREASE OUR PROFITABILITY.
The principal raw material used in our apparel is cotton. The price and
availability of cotton may fluctuate significantly, depending on a variety of
factors, including crop yields, weather, supply conditions, government
regulation, economic climate and other unpredictable factors. Any raw material
price increases could increase our cost of sales and decrease our profitability
unless we are able to pass higher prices on to our customers. Moreover, any
decrease in the availability of cotton could impair our ability to meet our
production requirements in a timely manner.
THE SUCCESS OF OUR BUSINESS DEPENDS UPON OUR ABILITY TO OFFER INNOVATIVE AND
UPGRADED PRODUCTS.
The apparel industry is characterized by constant product innovation
due to changing consumer preferences, and by the rapid replication of new
products by competitors. As a result, our success depends in large part on our
ability to continuously develop, market and deliver innovative products at a
pace and intensity competitive with other manufacturers in our segments. In
addition, we must create products that appeal to multiple consumer segments at a
range of price points. Any failure on our part to regularly develop innovative
products and update core products could:
o limit our ability to differentiate, segment and price our
products;
o adversely affect retail and consumer acceptance of our
products; and
o limit sales growth.
The increasing importance of product innovation in apparel requires us
to strengthen our internal research and commercialization capabilities, to rely
on successful commercial relationships with third parties such as fiber, fabric
and finishing providers and to compete and negotiate effectively for new
technologies and product components.
6
THE FINANCIAL CONDITION OF OUR CUSTOMERS COULD AFFECT OUR RESULTS OF OPERATIONS.
Certain retailers, including some of our customers, have experienced in
the past, and may experience in the future, financial difficulties, which
increase the risk of extending credit to such retailers and the risk that
financial failure will eliminate a customer entirely. These retailers have
attempted to improve their own operating efficiencies by concentrating their
purchasing power among a narrowing group of vendors. There can be no assurance
that we will remain a preferred vendor for our existing customers. A decrease in
business from or loss of a major customer could have a material adverse effect
on our results of operations. There can be no assurance that our factor will
approve the extension of credit to certain retail customers in the future. If a
customer's credit is not approved by the factor, we could assume the collection
risk on sales to the customer itself, require that the customer provide a letter
of credit, or choose not to make sales to the customer.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN
QUALIFIED EMPLOYEES.
We need talented and experienced personnel in a number of areas
including our core business activities. Our success is dependent upon
strengthening our management depth across our business at a rapid pace. An
inability to retain and attract qualified personnel or the loss of any of our
current key executives could harm our business. Our ability to attract and
retain qualified employees is adversely affected by the Los Angeles location of
our corporate headquarters due to the high cost of living in the Los Angeles
area.
WE DEPEND ON OUR COMPUTER AND COMMUNICATIONS SYSTEMS.
As a multi-national corporation, we rely on our computer and
communication network to operate efficiently. Any interruption of this service
from power loss, telecommunications failure, weather, natural disasters or any
similar event could have a material adverse affect on our business and
operations. Additionally, hackers and computer viruses have disrupted operations
at many major companies. We may be vulnerable to similar acts of sabotage, which
could have a material adverse effect on our business and operations.
WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE.
We may not be able to fund our future growth or react to competitive
pressures if we lack sufficient funds. Currently, we believe we have sufficient
cash on hand and cash available through our bank credit facilities, issuance of
long-term debt, proceeds from loans from affiliates, and proceeds from the
exercise of stock options to fund existing operations for the foreseeable
future. However, in the future we may need to raise additional funds through
equity or debt financings or collaborative relationships. This additional
funding may not be available or, if available, it may not be available on
economically reasonable terms. In addition, any additional funding may result in
significant dilution to existing shareholders. If adequate funds are not
available, we may be required to curtail our operations or obtain funds through
collaborative partners that may require us to release material rights to our
products.
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.
Substantially all of our import operations are subject to tariffs
imposed on imported products and quotas imposed by trade agreements. In
addition, the countries in which our products are manufactured or imported may
from time to time impose additional new quotas, duties, tariffs or other
restrictions on our imports or adversely modify existing restrictions. Adverse
changes in these import costs and restrictions, or our suppliers' failure to
comply with customs or similar laws, could harm our business. We cannot assure
that future trade agreements will not provide our competitors with an advantage
over
7
us, or increase our costs, either of which could have an adverse effect on our
business and financial condition.
Our operations are also subject to the effects of international trade
agreements and regulations such as the North American Free Trade Agreement, and
the activities and regulations of the World Trade Organization. Generally, these
trade agreements benefit our business by reducing or eliminating the duties
and/or quotas assessed on products manufactured in a particular country.
However, trade agreements can also impose requirements that adversely affect our
business, such as limiting the countries from which we can purchase raw
materials and setting quotas on products that may be imported into the United
States from a particular country. In addition, the World Trade Organization may
commence a new round of trade negotiations that liberalize textile trade by
further eliminating quotas or reducing tariffs. The elimination of quotas on
World Trade Organization member countries by 2005 and other effects of these
trade agreements could result in increased competition from developing
countries, which historically have lower labor costs, including China and
Taiwan, both of which recently became members of the World Trade Organization.
This potential increase in competition from developing countries is one of the
several reasons why we have determined to lease our manufacturing operations in
Mexico.
Our ability to import products in a timely and cost-effective manner
may also be affected by problems at ports or issues that otherwise affect
transportation and warehousing providers, such as labor disputes. These problems
could require us to locate alternative ports or warehousing providers to avoid
disruption to our customers. These alternatives may not be available on short
notice or could result in higher transit costs, which could have an adverse
impact on our business and financial condition.
OUR DEPENDENCE ON INDEPENDENT MANUFACTURERS REDUCES OUR ABILITY TO CONTROL THE
MANUFACTURING PROCESS, WHICH COULD HARM OUR SALES, REPUTATION AND OVERALL
PROFITABILITY.
We depend on independent contract manufacturers to secure a sufficient
supply of raw materials and maintain sufficient manufacturing and shipping
capacity in an environment characterized by declining prices, continuing cost
pressure and increased demands for product innovation and speed-to-market. This
dependence could subject us to difficulty in obtaining timely delivery of
products of acceptable quality. In addition, a contractor's failure to ship
products to us in a timely manner or to meet the required quality standards
could cause us to miss the delivery date requirements of our customers. The
failure to make timely deliveries may cause our customers to cancel orders,
refuse to accept deliveries, impose non-compliance charges through invoice
deductions or other charge-backs, demand reduced prices or reduce future orders,
any of which could harm our sales, reputation and overall profitability. We do
not have material long-term contracts with any of our independent contractors
and any of these contractors may unilaterally terminate their relationship with
us at any time. To the extent we are not able to secure or maintain
relationships with independent contractors that are able to fulfill our
requirements, our business would be harmed.
Although we monitor the compliance of our independent contractors with
applicable labor laws, we do not control our contractors or their labor
practices. The violation of federal, state or foreign labor laws by one of the
our contractors could result in our being subject to fines and our goods that
are manufactured in violation of such laws being seized or their sale in
interstate commerce being prohibited. From time to time, we have been notified
by federal, state or foreign authorities that certain of our contractors are the
subject of investigations or have been found to have violated applicable labor
laws. To date, we have not been subject to any sanctions that, individually or
in the aggregate, have had a material adverse effect on our business, and we are
not aware of any facts on which any such sanctions could be based. There can be
no assurance, however, that in the future we will not be subject to sanctions as
a result of violations of applicable labor laws by our contractors, or that such
sanctions will not have a material adverse effect on our business and results of
operations. In addition, certain of our customers, including The Limited,
require strict compliance by their apparel manufacturers, including us, with
applicable labor laws and visit our facilities often. There can be no assurance
that the violation of
8
applicable labor laws by one of our contractors will not have a material adverse
effect on our relationship with our customers.
OUR BUSINESS IS SUBJECT TO RISKS OF OPERATING IN A FOREIGN COUNTRY AND TRADE
RESTRICTIONS.
Approximately 97% of our products were imported from outside the U.S.
in the third quarter of 2003, and most of our fixed assets are located in
Mexico. We are subject to the risks associated with doing business and owning
fixed assets in foreign countries, including, but not limited to, transportation
delays and interruptions, political instability, expropriation, currency
fluctuations and the imposition of tariffs, import and export controls, other
non-tariff barriers (including changes in the allocation of quotas) and cultural
issues. Any changes in those countries' labor laws and government regulations
may have a negative effect on our profitability.
WE CANNOT GUARANTEE THAT OUR FUTURE ACQUISITIONS WILL BE SUCCESSFUL.
In the future, we may seek to continue our growth through acquisition.
We compete for acquisition and expansion opportunities with companies which have
significantly greater financial and management resources than us. There can be
no assurance that suitable acquisition or investment opportunities will be
identified, that any of these transactions can be consummated, or that, if
acquired, these new businesses can be integrated successfully and profitably
into our operations. These acquisitions and investments may also require a
significant allocation of resources, which will reduce our ability to focus on
the other portions of our business, including many of the factors listed in the
prior risk factor.
RISKS ASSOCIATED WITH OUR INDUSTRY
----------------------------------
OUR SALES ARE HEAVILY INFLUENCED BY GENERAL ECONOMIC CYCLES.
Apparel is a cyclical industry that is heavily dependent upon the
overall level of consumer spending. Purchases of apparel and related goods tend
to be highly correlated with cycles in the disposable income of our consumers.
Our customers anticipate and respond to adverse changes in economic conditions
and uncertainty by reducing inventories and canceling orders. As a result, any
substantial deterioration in general economic conditions, increases in interest
rates, acts of war, terrorist or political events that diminish consumer
spending and confidence in any of the regions in which we compete, could reduce
our sales and adversely affect our business and financial condition. This has
been underscored by the events of September 11, 2001 and the war in the Middle
East.
OUR BUSINESS IS HIGHLY COMPETITIVE AND DEPENDS ON CONSUMER SPENDING PATTERNS.
The apparel industry is highly competitive. We face a variety of
competitive challenges including:
o anticipating and quickly responding to changing consumer
demands;
o developing innovative, high-quality products in sizes, colors
and styles that appeal to consumers of varying age groups and
tastes;
o competitively pricing our products and achieving customer
perception of value; and
o providing strong and effective marketing support.
WE MUST SUCCESSFULLY GAUGE FASHION TRENDS AND CHANGING CONSUMER PREFERENCES TO
SUCCEED.
Our success is largely dependent upon our ability to gauge the fashion
tastes of our customers and to provide merchandise that satisfies retail and
customer demand in a timely manner. The apparel
9
business fluctuates according to changes in consumer preferences dictated in
part by fashion and season. To the extent, we misjudge the market for our
merchandise, our sales may be adversely affected. Our ability to anticipate and
effectively respond to changing fashion trends depends in part on our ability to
attract and retain key personnel in our design, merchandising and marketing
staff. Competition for these personnel is intense, and we cannot be sure that we
will be able to attract and retain a sufficient number of qualified personnel in
future periods.
OUR BUSINESS IS SUBJECT TO SEASONAL TRENDS.
Historically, our operating results have been subject to seasonal
trends when measured on a quarterly basis. This trend is dependent on numerous
factors, including the markets in which we operate, holiday seasons, consumer
demand, climate, economic conditions and numerous other factors beyond our
control. There can be no assurance that our historic operating patterns will
continue in future periods as we cannot influence or forecast many of these
factors.
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Exchange Act of 1934, both as amended. These forward-looking
statements are subject to various risks and uncertainties. The forward-looking
statements include, without limitation, statements regarding our future business
plans and strategies and our future financial position or results of operations,
as well as other statements that are not historical. You can find many of these
statements by looking for words like "will", "may", "believes", "expects",
"anticipates", "plans" and "estimates" and for similar expressions. Because
forward-looking statements involve risks and uncertainties, there are many
factors that could cause the actual results to differ materially from those
expressed or implied. These include, but are not limited to, economic
conditions. Any forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ
materially from those projected in this prospectus, for the reasons, among
others, described in the Risk Factors section beginning on page 4. You should
read the Risk Factors section carefully, and should not place undue reliance on
any forward-looking statements, which speak only as of the date of this
prospectus. We undertake no obligation to release publicly any updated
information about forward-looking statements to reflect events or circumstances
occurring after the date of this prospectus or to reflect the occurrence of
unanticipated events.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, we
anticipate that any net proceeds from the sale of the securities that we may
offer under this prospectus and any accompanying prospectus supplement will be
used for general corporate purposes. General corporate purposes may include
acquisitions, investments, repayment of debt, capital expenditures, repurchase
of our capital stock and any other purposes that we may specify in any
prospectus supplement. We may invest the net proceeds temporarily until we use
them for their stated purpose.
DILUTION
Our net tangible book value at September 30, 2003 was $69,750,000, or
$3.72 per share of common stock. Net tangible book value per share represents
total tangible assets less total liabilities divided by the number of
outstanding shares of common stock on September 30, 2003. Assuming we issue an
aggregate of $20,000,000 of common stock at an assumed public offering price of
$3.90 per share (the last reported sale price of the common stock on the NASDAQ
National Market on December 10, 2003), and our receipt of the estimated net
proceeds from the sale of those shares (after estimated offering expenses of
$38,000), our adjusted net tangible book value at September 30, 2003 would have
10
been $89,712,000, or $3.75 per share. This represents an immediate increase in
our adjusted net tangible book value of $0.03 per share to existing shareholders
and an immediate dilution of $0.15 per share to new investors purchasing common
stock in such offering. The following table illustrates this per share dilution:
Assumed public offering price per share (1)........... $ 3.90
Net tangible book value per share
at September 30, 2003........................... $ 3.72
Increase in net tangible book value
per share attributable to this offering......... 0.03
---------
Net tangible book value per share after this
offering........................................... 3.75
--------
Dilution in net tangible book value per share
to new investors................................... $ 0.15
========
----------
(1) We have assumed an offering price of $3.90 per share based on the last
reported sale price of the common stock on the NASDAQ National Market on
December 10, 2003. The assumed offering price of the common stock at the
time any common stock is offered hereby may differ significantly from the
offering price assumed for purposes of this Prospectus.
The computations in the table above assume no exercise of any
outstanding stock options and warrants after September 30, 2003. At September
30, 2003 there were options and warrants outstanding to purchase a total of
8,348,487 shares of common stock at a weighted average exercise price of $7.55
per share. If any of these options are exercised, there will be further dilution
to new investors.
If the securities offered by this prospectus are common stock, if
required, a prospectus supplement may include a revised dilution table setting
forth any increase in net tangible book value to existing shareholders and any
dilution to new investors based on the proposed number of shares of common stock
to be offered and the assumed public offering price at the time of such
offering.
DESCRIPTION OF THE COMMON STOCK AND PREFERRED STOCK WE MAY OFFER
The following description of our common stock and preferred stock,
together with the additional information included in any applicable prospectus
supplements, summarizes the material terms and provisions of these types of
securities but is not complete. For the complete terms of our common stock and
preferred stock, please refer to our restated articles of incorporation, as
amended, and bylaws that are incorporated by reference into the registration
statement which includes this prospectus and, with respect to preferred stock,
the certificate of determination which will be filed with the Securities and
Exchange Commission for each series of preferred stock we may designate, if any.
We also refer you to the description of our common stock set forth in our
Registration Statement on Form 8-A filed with the SEC on May 4, 1995.
We will describe in a prospectus supplement the specific terms of any
common stock or preferred stock we may offer pursuant to this prospectus. If
indicated in a prospectus supplement, the terms of such common stock or
preferred stock may differ from the terms described below.
COMMON STOCK
Under our restated articles of incorporation, as amended, we may issue
up to 100 million (100,000,000) shares of common stock. The holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the shareholders. Subject to preferences that may
be applicable to any outstanding preferred stock, holders of common stock are
entitled to receive
11
ratably such dividends as may be declared by the Tarrant board of directors out
of funds legally available for that purpose. In the event of liquidation,
dissolution or winding up of Tarrant, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities, subject
to the prior distribution rights of any outstanding preferred stock. The common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. The
outstanding shares of common stock are fully paid and non-assessable.
The transfer agent and registrar for our common stock is Computershare
Trust Company, 350 Indiana Street, Suite 800, Golden, CO 80401.
PREFERRED STOCK
Under our restated articles of incorporation we may issue up to 2
million (2,000,000) shares of preferred stock. The number of authorized shares
of preferred stock includes 250,000 shares of Series B Preferred Stock issuable
pursuant to the Rights Agreement, as described below under the heading " -
Shareholder Rights Plan." No shares of preferred stock or options to purchase
preferred stock are currently outstanding. Our board of directors has the
authority, without further action by the shareholders, to issue up to the
maximum authorized number of shares of preferred stock in one or more series.
The board of directors also has the authority to designate the rights,
preferences, privileges and restrictions of each such series, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series. The rights, preferences, privileges and restrictions of each series
will be fixed by the certificate of determination relating to that series. Any
or all of the rights of the preferred stock may be greater than the rights of
the common stock.
The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Tarrant without further action by
the shareholders. The issuance of preferred stock with voting and conversion
rights may also adversely affect the voting power of the holders of common
stock. In certain circumstances, an issuance of preferred stock could have the
effect of decreasing the market price of the common stock.
Whenever preferred stock is to be sold pursuant to this prospectus, we
will file a prospectus supplement relating to that sale which will specify:
o the number of shares in the series of preferred stock;
o the designation for the series of preferred stock by number,
letter or title that shall distinguish the series from any
other series of preferred stock;
o the dividend rate, if any, and whether dividends on that
series of preferred stock will be cumulative, noncumulative or
partially cumulative;
o the voting rights of that series of preferred stock, if any;
o any conversion provisions applicable to that series of
preferred stock;
o any redemption or sinking fund provisions applicable to that
series of preferred stock;
o the liquidation preference per share of that series of
preferred stock, if any; and
o the terms of any other preferences or rights, if any,
applicable to that series of preferred stock.
12
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
We have shares of common stock and preferred stock available for future
issuance without shareholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to raise
additional capital, facilitate corporate acquisitions or payable as a dividend
on the capital stock.
The existence of unissued and unreserved common stock and preferred
stock may enable our board of directors to issue shares to persons friendly to
current management or to issue preferred stock with terms that could render more
difficult or discourage an attempt to obtain control of us by means of a merger,
tender offer, proxy contest or otherwise, thereby protecting the continuity of
our management. In addition, the issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation.
SHAREHOLDER RIGHTS PLAN
Each outstanding share of our common stock includes, and each share of
common stock offered under this prospectus and the accompanying prospectus
supplement will include, one preferred stock purchase right (individually a
"Right" and collectively the "Rights") as provided under the Rights Agreement,
dated November 21, 2003, between us and Computershare Trust Company. Each Right
entitles the holder, until the earlier of December 12, 2013 or the redemption of
the Rights, to purchase one one-thousandth of a share of our Series B Preferred
Stock, no par value (the "Series B Preferred Stock"), at a price (the "Purchase
Price") of $25.00 per one one-thousandth of a share (as may be adjusted to
reflect stock splits, stock dividends or certain other dilutive events since the
issuance of the Rights). The Series B Preferred Stock is nonredeemable and will
have 1,000 votes per share (subject to adjustment). We have reserved 250,000
shares of Series B Preferred Stock for issuance upon exercise of the Rights.
The Rights will become exercisable upon the earliest to occur of (i)
the tenth day after the acquisition by a person or group of affiliated or
associated persons (other than certain exempt persons or permitted holders, as
defined in the Rights Agreement) of beneficial ownership of 15% or more of our
outstanding common stock, (ii) the tenth day after the commencement of a tender
or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of affiliated or associated persons of 15% or
more of our outstanding common stock, (iii) the tenth day after the date of
filing of a registration statement for any such exchange offer under the
Securities Act of 1933, and (iv) the tenth day after the date on which our Board
declares any person or group of affiliated or associated persons which
beneficially owns 10% or more of our outstanding common stock to be an "Adverse
Person" (as described in the Rights Agreement).
Following the date the Rights become exercisable, the Rights would give
holders (other than the acquiring shareholder who triggered exercise of the
Rights, its affiliates and transferees) the right to purchase from us, for the
Purchase Price, that number of one one-thousandth (1/1000th) of a share of
Series B Preferred Stock (or, in certain circumstances, Common Stock, cash,
property or other securities of ours) having a market value of twice the
Purchase Price of the Right. Further, in a merger, consolidation or sale or
transfer of 50% or more of the consolidated assets or earning power of Tarrant,
each Right will be converted into the right to purchase, for the Purchase Price,
that number of shares of common stock of the surviving entity or (in certain
circumstances) its parent corporation, which at the time of such transaction
will have a market value of twice the Purchase Price of the Right. The Rights
Agreement contains an exception for inadvertent acquisitions of more than 15% of
our common stock, so long as the holder reduces its ownership below the 15%
threshold within five business days following notice from our board of
directors.
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Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each one one-thousandth (1/1000th) of a share of Preferred Stock
will be entitled to participating dividends per one one-thousandth (1/1000th) of
a share equal to dividends which may from time to time be declared on a share of
Common Stock. In the event of liquidation, the Preferred Stock holders will be
entitled to a preferential liquidation payment. These rights are protected by
customary anti-dilution provisions.
One Right will be issued in respect of each share of our common stock
issued before the earlier of December 12, 2013 or the redemption of the Rights.
As of the date of this prospectus, the Rights are not exercisable, certificates
representing the Rights have not been issued and the Rights automatically trade
with shares of our common stock.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Tarrant on
terms not approved by our board of directors. The Rights should not interfere
with any merger or other business combination approved by the Board prior to the
time that holders of the Rights become entitled to exercise their Rights for
Series B Preferred Stock (or securities of the surviving entity in a merger with
the Company), since until that time the Rights may be redeemed by the Board at
$0.001 per Right.
CERTAIN PROVISIONS OF OUR CHARTER AND BYLAWS
Our restated articles of incorporation and bylaws could make the
acquisition of Tarrant and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of Tarrant to negotiate with us first. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
Tarrant outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. These provisions provide for, among other things:
o a classified board of directors;
o a prohibition on shareholder action through written consents;
o a requirement that special meetings of shareholders be called
only by our board of directors, the chairman of our board of
directors, our chief executive officer, our president, or by
the holders of shares entitled to cast not less than 10% of
the votes at the meeting;
o advance notice requirements for shareholder proposals and
nominations;
o limitations on the ability of shareholders to amend, alter or
repeal our articles of incorporation or our bylaws; and
o the authority of our board of directors to issue, without
shareholder approval, preferred stock with such terms as the
board of directors may determine.
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DESCRIPTION OF THE WARRANTS WE MAY OFFER
We may issue warrants, including warrants to purchase common stock,
preferred stock, or any combination of the foregoing. Warrants may be issued
independently or together with any securities and may be attached to or separate
from the securities. The warrants will be issued under warrant agreements to be
entered into between us and the recipient of the warrant or a warrant agent as
detailed in the prospectus supplement relating to warrants being offered.
The applicable prospectus supplement will describe the following terms,
where applicable, of the warrants in respect of which this prospectus is being
delivered:
o the title of the warrants;
o the aggregate number of the warrants;
o the price or prices at which the warrants will be issued;
o the currencies in which the price or prices of the warrants
may be payable;
o the designation, amount, and terms of the offered securities
purchasable upon exercise of the warrants;
o the designation and terms of the other offered securities, if
any, with which the warrants are issued and the number of the
warrants issued with each security;
o if applicable, the date on and after which the warrants and
the offered securities purchasable upon exercise of the
warrants will be separately transferable;
o the price or prices at which and currency or currencies in
which the offered securities purchasable upon exercise of the
warrants may be purchased;
o the date on which the right to exercise the warrants shall
commence and the date on which the right shall expire;
o the minimum or maximum amount of the warrants which may be
exercised at any one time;
o information with respect to book-entry procedures, if any;
o a discussion of any federal income tax considerations; and
o any other material terms of the warrants, including terms,
procedures, and limitations relating to the exchange and
exercise of the warrants.
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PLAN OF DISTRIBUTION
We may sell the securities:
o through one or more underwriters or dealers,
o directly to purchasers, through agents, or
o through a combination of any of these methods of sale.
We may distribute the securities:
o from time to time in one or more transactions at a fixed price
or prices, which may be changed from time to time,
o at market prices prevailing at the times of sale,
o at prices related to such prevailing market prices, or
o at negotiated prices.
We will describe the method of distribution of the securities in the
applicable prospectus supplement.
Underwriters, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from us or our purchasers (as their agents
in connection with the sale of securities). These underwriters, dealers or
agents may be considered to be underwriters under the Securities Act of 1933. As
a result, discounts, commissions, or profits on resale received by the
underwriters, dealers or agents may be treated as underwriting discounts and
commissions. Each prospectus supplement will identify any such underwriter,
dealer or agent, and describe any compensation received by them from us. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Underwriters, dealers and agents may be entitled, under agreements
entered into with us, to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribution with respect to payments made by the underwriters, dealers or
agents, under agreements between us and the underwriters, dealers and agents.
We may grant underwriters who participate in the distribution of
securities an option to purchase additional securities to cover over-allotments,
if any, in connection with the distribution. Underwriters or agents and their
associates may be customers of, engage in transactions with, or perform services
for us in the ordinary course of business.
In connection with the offering of the securities, certain underwriters
and selling group members and their respective affiliates, may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the SEC pursuant to which these persons may bid for or purchase securities for
the purpose of stabilizing their market price.
The underwriters in an offering of securities may also create a "short
position" for their account by selling more securities in connection with the
offering than they are committed to purchase from us. In that case, the
underwriters could cover all or a portion of the short position by either
purchasing securities in the open market following completion of the offering of
these securities or by exercising any over-allotment option granted to them by
us. In addition, any managing underwriter may impose "penalty bids" under
contractual arrangements with other underwriters, which means that they can
reclaim from an
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underwriter (or any selling group member participating in the offering) for the
account of the other underwriters, the selling concession for the securities
that are distributed in the offering but subsequently purchased for the account
of the underwriters in the open market. Any of the transactions described in
this paragraph or comparable transactions that are described in any accompanying
prospectus supplement may result in the maintenance of the price of the
securities at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph or in an
accompanying prospectus supplement are required to be taken by any underwriters
and, if they are undertaken, may be discontinued at any time.
Our common stock is listed on the NASDAQ National Market under the
symbol "TAGS." Any shares of common stock sold pursuant to a prospectus
supplement will be listed on the NASDAQ National Market, subject to official
notice of issuance. The preferred stock and any securities other than common
stock that we may sell pursuant to this prospectus, and any prospectus
supplement, will be new issues of securities with no established trading market
and may or may not be listed on a national securities exchange. Any underwriters
or agents to or through which we may sell securities may make a market in the
securities, but these underwriters or agents will not be obligated to do so and
any of them may discontinue any market making at any time without notice. We
cannot, therefore, give any assurance as to the liquidity of our trading market
for any securities that we may sell, other than our common stock.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the SEC with
respect to the common stock offered by this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules that are part of the registration statement. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. We refer you to the registration statement and the
exhibits and schedules thereto for further information with respect to us and
our common stock. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings are also available to the public
from the SEC's website at www.sec.gov.
We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934 and, in accordance with those
requirements, will continue to file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's website referred to above.
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. We incorporate by reference the documents listed
below and any additional documents filed by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities is terminated. The information we incorporate by reference is an
important part of this prospectus, and any information that we file later with
the SEC will automatically update and supersede this information.
The documents we incorporate by reference are:
1. Our Annual Report on Form 10-K for the year ended December 31,
2002 (File No. 000-26430);
2. Our Amendment No. 1 to our Annual Report on Form 10-K for the
year ended December 31, 2002, as filed on May 15, 2003 (File
No. 000-26430)
3. Our Quarterly Report on Form 10-Q for the quarter ended March
31, 2003 (File No. 000-26430);
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4. Our Quarterly Report on Form 10-Q for the quarter ended June
30, 2003 (File No. 000-26430);
5. Our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (File No. 000-26430);
6. Our Current Report on Form 8-K as filed on April 4, 2003 (File
No. 000-26430);
7. Our Current Report on Form 8-K as filed on May 16, 2003 (File
No. 000-26430);
8. Our Current Report on Form 8-K as filed on July 10, 2003 (File
No. 000-26430);
9. Our Current Report on Form 8-K as filed on August 18, 2003
(File No. 000-26430);
10. Our Current Report on Form 8-K as filed on October 27, 2003
(File No. 000-26430);
11. Our Current Report on Form 8-K as filed on November 14, 2003
(File No. 000-26430);
12. Our Current Report on Form 8-K as filed on November 21, 2003
(File No. 000-26430);
13. Our Current Report on Form 8-K as filed on December 10, 2003
(File No. 000-26430);
14. The description of the Common Stock of the Registrant
contained in the Registrant's Registration Statement on Form
8-A as filed on May 4, 1995 (File No. 000-26006), including
any amendment or report filed for the purpose of updating such
description; and
15. All other reports filed by us pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 since December
31, 2002, including all such reports filed after the date of
the initial registration statement and prior to effectiveness
of the registration statement.
You may request a copy of these filings, at no cost, by writing or
calling us at Tarrant Apparel Group, 3151 East Washington Boulevard, Los
Angeles, California 90023, telephone number (323) 780-8250, Attention: Patrick
Chow.
You should rely only on the information contained in this prospectus or
any supplement and in the documents incorporated by reference above. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus or any supplement or in the
documents incorporated by reference is accurate on any date other than the date
on the front of those documents.
LEGAL MATTERS
Stubbs Alderton & Markiles, LLP, Encino, California, has rendered to
Tarrant Apparel Group a legal opinion as to the validity of the common stock,
preferred stock and warrants for equity securities to be offered pursuant to
this prospectus.
EXPERTS
The consolidated financial statements of the Tarrant Apparel Group
appearing in Tarrant Apparel Group's Annual Report (Form 10-K) for the year
ended December 31, 2002 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon and incorporated by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
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