As filed with the Securities and Exchange
Commission on September 8, 2006. Registration No. 333-136585
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TARRANT APPAREL GROUP
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 95-4181026
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(323) 780-8250
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
GERARD GUEZ, CHIEF EXECUTIVE OFFICER
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(323) 780-8250
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
COPIES TO:
John J. McIlvery, Esq.
Stubbs Alderton & Markiles, LLP
15260 Ventura Boulevard, Floor 20
Sherman Oaks, California 91403
(818) 444-4500
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If this Form is a registration statement pursuant to General
Instructions I.D. or a post-effective amendment thereto that shall become
effective upon filing with the Commission pursuant to Rule 462(e) under the
Securities Act, check the following box. [_]
If this Form is a post-effective amendment to a registration statement
filed pursuant to General Instruction I.D. filed to register additional
securities or additional classes of securities pursuant to Rule 413(b) under the
Securities Act, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION - September 8, 2006
PROSPECTUS
TARRANT APPAREL GROUP
4,917,859 SHARES OF COMMON STOCK
(no par value)
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This prospectus relates to the offer and sale from time to time of up
to 4,917,859 shares of our common stock that are held by the shareholders named
in the "Selling Shareholders" section of this prospectus. The shares of our
common stock offered pursuant to this prospectus were originally issued to the
selling shareholders pursuant to their exercise of warrants to purchase common
stock.
The prices at which the selling shareholders may sell the shares in
this offering will be determined by the prevailing market price for the shares
or in negotiated transactions. We will not receive any of the proceeds from the
sale of the shares. We will bear all expenses of registration incurred in
connection with this offering. The selling shareholders whose shares are being
registered will bear all broker and similar commissions of the selling
shareholders.
Our common stock is traded on the NASDAQ National Market System under
the symbol "TAGS." On September 7, 2006, the last reported sale price of the
common stock on the NASDAQ National Market System was $1.70 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.
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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.
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The date of this prospectus is ______________
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................... 3
RISK FACTORS................................................................. 4
FORWARD-LOOKING STATEMENTS................................................... 10
USE OF PROCEEDS.............................................................. 10
SELLING SHAREHOLDERS......................................................... 11
PLAN OF DISTRIBUTION......................................................... 15
WHERE YOU CAN FIND MORE INFORMATION.......................................... 17
LEGAL MATTERS................................................................ 18
EXPERTS...................................................................... 18
2
PROSPECTUS SUMMARY
ABOUT TARRANT APPAREL GROUP
Tarrant Apparel Group is a design and sourcing company for private
label and private brand casual apparel serving mass merchandisers, department
stores, branded wholesalers and specialty chains located primarily in the United
States. Our major customers include leading retailers, such as Kohl's, Chico's,
Macy's Merchandising Group, Mervyn's, Mothers Work, Sears, Wal-Mart, Dillard's,
the Avenue, Lane Bryant, Lerner New York, and J.C. Penney. 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. Our private brands include American Rag Cie and Alain Weiz.
ABOUT THE OFFERING
This prospectus may be used only in connection with the resale by the
selling shareholders of up to 4,917,859 shares of our common stock issuable upon
exercise of warrants.
We will not receive any proceeds from the sale of the shares of common
stock offered by the selling shareholders using this prospectus. On September 6,
2006 we had 30,543,763 shares of common stock outstanding.
CORPORATE INFORMATION
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 COMMON STOCK. 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 COMMON STOCK.
RISKS RELATED TO THIS OFFERING
THE ULTIMATE RESOLUTION OF THE INTERNAL REVENUE SERVICE'S EXAMINATION OF OUR TAX
RETURNS MAY REQUIRE US TO INCUR AN EXPENSE BEYOND WHAT HAS BEEN RESERVED FOR ON
OUR BALANCE SHEET OR MAKE CASH PAYMENTS BEYOND WHAT WE ARE THEN ABLE TO PAY.
In January 2004, the Internal Revenue Service proposed adjustments to
increase our federal income tax payable for the years ended December 31, 1996
through 2001. This adjustment would also result in additional state taxes,
penalties and interest. In addition, in July 2004, the IRS initiated an
examination of our Federal income tax return for the year ended December 31,
2002. In March 2005, the IRS proposed an adjustment to our taxable income of
approximately $6 million related to similar issues identified in their audit of
the 1996 through 2001 federal income tax returns. We believe that we have
meritorious defenses to and intend to vigorously contest the proposed
adjustments made to our federal income tax returns for the years ended 1996
through 2002. If the proposed adjustments are upheld through the administrative
and legal process, they could have a material impact on our earnings and cash
flow. We believe we have provided adequate reserves for any reasonably
foreseeable outcome related to these matters on the consolidated balance sheets
included in the Consolidated Financial Statements. The maximum amount of loss in
excess of the amount accrued in the financial statements is $7.7 million. If the
amount of any actual liability, however, exceeds our reserves, we would
experience an immediate adverse earnings impact in the amount of such additional
liability, which could be material. Additionally, we anticipate that the
ultimate resolution of these matters will require that we make significant cash
payments to the taxing authorities. Presently we do not have sufficient cash on
hand to make any future payments that may be required. No assurance can be given
that we will have sufficient surplus cash from operations or borrowing ability
to make the required payments. Additionally, any cash used for these purposes
will not be available for other corporate purposes, which could have a material
adverse effect on our financial condition and results of operations.
INSIDERS OWN A SIGNIFICANT PORTION OF OUR COMMON STOCK, WHICH COULD LIMIT OUR
SHAREHOLDERS' ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS.
As of June 30, 2006, our executive officers and directors and their
affiliates owned approximately 43% of the outstanding shares of our common
stock. Gerard Guez, our Chairman and Interim Chief Executive Officer, and Todd
Kay, our Vice Chairman, alone own approximately 33.1% and 8.4%, respectively, of
the outstanding shares of our common stock at June 30, 2006. 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.
4
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 without approval
of our board of directors.
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 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.
Four customers collectively accounted for approximately 55% of our net
sales in first six months of 2006. 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.
5
While we have long-standing customer relationships, we generally do not
have long-term contracts with them. 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 OF THE TRANSPORTATION INFRASTRUCTURE TO MOVE SEA FREIGHT IN ACCEPTABLE
TIME FRAMES COULD ADVERSELY AFFECT OUR BUSINESS.
Because the bulk of our freight is designed to move through the West
Coast ports in predictable time frames, we are at risk of cancellations and
penalties when those ports operate inefficiently creating delays in delivery. We
experienced such delays from June 2004 until November 2004, and we may
experience similar delays in the future especially during peak seasons.
Unpredictable timing for shipping may cause us to utilize air freight or may
result in customer penalties for late delivery, any of which could reduce our
operating margins and adversely affect our results of operations.
UNPREDICTABLE DELAYS AS THE RESULT OF INCREASED AND INTENSIFIED CUSTOMS
ACTIVITY.
U.S. Customs has stepped up efforts to scrutinize imports from Hong
Kong in order to verify all details of shipments under the OPA rules allowing
certain processes to be performed in China without shipping under China country
of origin documentation. Such "detentions" are unpredictable and cause serious
interruption of normally expected freight movement timetables.
THE OUTCOME OF LITIGATION IN WHICH WE ARE INVOLVED IS UNPREDICTABLE AND AN
ADVERSE DECISION IN ANY SUCH MATTER COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR
FINANCIAL POSITION AND RESULTS OF OPERATIONS.
We are currently in litigation with the licensors of the Jessica
Simpson brands regarding our rights to sell apparel under these brands. The
licensor has filed a counterclaim against us seeking damages. These claims may
divert financial and management resources that would otherwise be used to
benefit our operations. Although we believe that we have meritorious defenses to
the claims made against us, and intend to contest the lawsuit vigorously, no
assurances can be given that the results of these matters will be favorable to
us. An adverse resolution of any of these lawsuits could have a material adverse
affect on our financial position and results of operations. Additionally, we
have incurred significant legal fees in this litigation, and unless the case is
settled, we will continue to incur additional legal fees in increasing amounts
as the case accelerates to trial.
6
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, sourcing capability, distribution
facilities and receivables management. Any disruption in our order processing,
sourcing or distribution systems could cause orders 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, 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.
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 credit facilities, issuance of
long-term debt and equity securities, 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.
7
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.
Substantially all of our import operations are subject to tariffs
imposed on imported products, safeguards and growth targets imposed by trade
agreements. In addition, the countries in which our products are manufactured or
imported may from time to time impose additional new 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 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
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
duties or restrictions 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 or reducing tariffs. The elimination of quotas on World
Trade Organization member countries in 2005 has resulted in explosive growth in
textile imports from China, and subsequent safeguard measures including embargo
of certain China country of origin products. Actions taken to avoid these
measures caused disruption, and a negative impact on margins. Such disruption
may continue to affect us to some extent in the future.
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, labor shortage,
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.
We have initiated a factory compliance agreement with our suppliers,
and monitor our independent contractors' compliance with applicable labor laws,
but 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, require strict compliance by their apparel
manufacturers, including us, with
8
applicable labor laws and visit our facilities often. There can be no assurance
that the violation of applicable labor laws by one of our contractors will not
have a material adverse effect on our relationship with our customers.
OUR DEPENDENCE ON THIRD PARTIES FOR BRANDED APPAREL PRODUCTS REDUCES OUR ABILITY
TO CONTROL THE MARKETING PROCESS, WHICH COULD HARM OUR SALES, REPUTATION AND
OVERALL PROFITABILITY.
For certain branded apparel lines, in particular celebrity brands, we
depend on the cooperation and efforts of the celebrity personality and/or master
licensor to support our design and marketing efforts for apparel products. A
celebrity's failure to adequately support our marketing efforts could adversely
affect the sales for new products and lines. In addition, we are subject to the
terms of our agreements with the master licensor for licensed brands, and our
rights to exploit certain brands may therefore be limited. Further, we may, from
time to time, become involved in disputes with the master licensor with respect
to our contractual relationship. To the extent we are not able to receive
adequate support from the master licensor and/or celebrity or maintain good
working relationships with master licensors, our business would be harmed.
OUR BUSINESS IS SUBJECT TO RISKS OF OPERATING IN A FOREIGN COUNTRY AND TRADE
RESTRICTIONS.
Approximately 90% of our products were imported from outside the U.S.
in fiscal 2005. We are subject to the risks associated with doing business 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
and cultural issues. Any changes in those countries' labor laws and government
regulations may have a negative effect on our profitability.
RISK 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.
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 the need to provide strong and effective marketing support.
9
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 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 words "expect,"
"estimate," "anticipate," "predict," "believe," "intend," "plan," "continuing,"
"ongoing" and similar expressions and variations thereof are intended to
identify forward-looking statements. Such statements appear in a number of
places in this prospectus and include statements regarding our intent, belief or
current expectations regarding our strategies, future sales, other plans and
objectives, our ability to design, develop, source and market products, or fund
our operations or acquistions, and the ability of our products to achieve or
maintain commercial acceptance. 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
The proceeds from the sale of each selling shareholder's common stock
will belong to that selling shareholder. We will not receive any proceeds from
such sales.
We may receive additional proceeds upon exercise of the warrants issued
to the selling shareholders. To the extent we receive any proceeds upon exercise
of the warrants, we intend to use such proceeds for general working capital
purposes.
10
SELLING SHAREHOLDERS
CREDIT FACILITY WITH GUGGENHEIM CORPORATE FUNDING LLC AND ISSUANCE OF WARRANTS
On June 16, 2006, we entered into a Credit Agreement with various
lenders and with Guggenheim Corporate Funding LLC, as administrative agent and
collateral agent for the lenders (the "Agent"). This credit facility provides
for borrowings of up to $65 million. This facility consists of an initial term
loan of up to $25 million, of which we borrowed $15.5 million at the initial
funding, to be used to repay certain existing indebtedness and fund general
operating and working capital needs. An additional term loan of up to $40
million will be available under this facility to finance acquisitions acceptable
to the Agent. All amounts under the term loans become due and payable in
December 2010. Interest under this facility is payable quarterly, with the
interest rate equal to the LIBOR rate plus an applicable margin based on our
debt leverage ratio (as defined in the credit agreement). Our obligations under
the Guggenheim credit facility are secured by a lien on substantially all the
assets of Tarrant Apparel Group and our domestic subsidiaries, including a
pledge of the equity interests of our domestic subsidiaries and 65% of our
Luxembourg subsidiary. This credit facility contains customary financial
covenants, including covenants that we maintain minimum levels of EBITDA and
interest coverage ratios and limitations on additional indebtedness. This
facility includes customary default provisions, and all outstanding obligations
may become immediately due and payable in the event of a default.
In connection with Guggenheim credit facility, on June 16, 2006, we
issued Midland National Life Insurance Company, North American Company for Life
and Health Insurance and Orpheus Holdings, LLC, the lenders under this facility,
warrants to purchase up to an aggregate of 3,857,143 shares of our common stock.
These warrants have a term of 10 years. These warrants are exercisable at a
price of $1.88 per share with respect to 20% of the shares, $2.00 per share with
respect to 20% of the shares, $3.00 per share with respect to 20% of the shares,
$3.75 per share with respect to 20% of the shares and $4.50 per share with
respect to 20% of the shares. The exercise prices are subject to adjustment for
certain dilutive events pursuant to the terms of the warrants. A portion of the
warrants will not become exercisable unless and until a specified portion of the
initial term loan is actually funded by the lenders.
Durham Capital Corporation acted as our advisor in connection with the
Guggenheim credit facility. As compensation for its services, we agreed to pay
Durham Capital a cash fee in an amount equal to 1% of the committed principal
amount of the loans under the Guggenheim credit facility. In addition, we issued
Durham Capital a warrant to purchase 77,143 shares of our common stock. This
warrant has a term of 10 years and is exercisable at price of $1.88 per share,
subject to adjustment for certain dilutive events. A portion of this warrant
will not become exercisable unless and until a specified portion of the initial
term loan is actually funded by the lenders.
In connection with the Guggenheim credit facility, we entered into a
registration rights agreement with the selling shareholders. Pursuant to the
registrant rights agreement, as amended, we agreed to file a registration
statement on Form S-3 registering the resale by the selling shareholders of 125%
of the shares of common stock to be issued upon exercise of their warrants
described in this prospectus and to keep the registration statement effective
until the date that all the shares of common stock covered by the registration
statement on Form S-3 have been sold or may be sold by each selling shareholder
without volume restrictions pursuant to Rule 144 promulgated under the
Securities Act of 1933. This registration rights agreement provides that we must
register for resale the common shares by November 13, 2006. This registration
rights agreement, as amended, also provides that if we do not comply with
certain covenants regarding the registration for resale of the common shares by
January 12, 2006, then we must pay each of the selling shareholders a fee of 1%
of the aggregate exercise price of the warrants held by such selling shareholder
(to the extent the warrants are then exercisable and the exercise price is less
than the then-current market price) for each month after such date that we fail
to comply with such registration covenants until such non-compliance is
remedied. Pursuant to the registration rights agreement, we filed the
registration statement of which this prospectus is a part with the Securities
and Exchange Commission.
11
The warrants issued on June 16, 2006 in relation to the credit facility
contain "weighted average" antidilution adjustment provisions which provide for
adjustments to the exercise price of the warrants under certain circumstances if
we were to issue additional securities at a price below the then applicable base
exercise price or below the then applicable market price for our common stock.
As a result, if these adjustment provisions are triggered, we may be obligated
to issue additional shares of common stock upon exercise of the warrants. To
address this possible issuance of additional shares, we are registering the
additional 25% of shares currently issuable upon exercise of the warrants. In
addition, as described above, the registration rights agreement we entered into
with the selling shareholders obligates us to register these additional shares.
Other than the transactions described above, we had no material
relationship with any selling shareholder during the three years preceding the
date of this prospectus.
SELLING SHAREHOLDERS TABLE
The following table sets forth: (1) the name of each of the shareholder
for whom we are registering shares under this registration statement; (2) the
number of shares of our common stock beneficially owned by each such shareholder
prior to this offering (including all shares of common stock issuable upon the
exercise of warrants as described above, whether or not exercisable within 60
days of the date hereof); (3) the number of shares of our common stock offered
by such shareholer pursuant to this prospectus; and (4) the number of shares,
and (if one percent or more) the percentage of the total of the outstanding
shares, of our common stock to be beneficially owned by each such shareholder
after this offering, assuming that all of the shares of our common stock
beneficially owned by each such shareholder and offered pursuant to this
prospectus are sold and that each such shareholder acquires no additional shares
of our common stock prior to the completion of this offering. Such data is based
upon information provided by each selling shareholder.
We do not know how long the selling shareholders will hold the shares
before selling them or how many shares they will sell, and we currently have no
agreements, arrangements or understandings with any of the selling shareholders
regarding the sale of any shares. The shares offered by this prospectus may be
offered from time to time by the selling shareholders listed below. The selling
shareholders may elect not to sell any or all of the securities offered by this
prospectus.
Pursuant to the terms of the warrants held by the selling shareholders,
each selling shareholder shall not, without the approval of our shareholders,
exercise any portion of the warrant held by it to the extent that after giving
effect to such issuance after exercise, the shares issued with respect to such
warrant, together with any other warrants issued to the selling shareholders,
would represent more than 19.9% of the shares of common stock issued and
outstanding as of June 16, 2006. The shares of common stock and percentage
ownership listed in this table do not reflect these contractual limitations on a
selling shareholder's ability to acquire common shares upon exercise of its
warrants.
PERCENTAGE OF
COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK BEING OFFERED OWNED UPON OWNED UPON
OWNED PRIOR TO PURSUANT TO THIS COMPLETION OF COMPLETION OF
NAME THE OFFERING(1) PROSPECTUS(2) THIS OFFERING THIS OFFERING(3)
--------------------------------------- ---------------- ---------------- ---------------- ----------------
Midland National Life Insurance
Company (4) ........................... 1,071,429 1,339,287 0 0
North American Company for Life and
Health Insurance (5) .................. 714,286 892,858 0 0
12
PERCENTAGE OF
COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK BEING OFFERED OWNED UPON OWNED UPON
OWNED PRIOR TO PURSUANT TO THIS COMPLETION OF COMPLETION OF
NAME THE OFFERING(1) PROSPECTUS(2) THIS OFFERING THIS OFFERING(3)
--------------------------------------- ---------------- ---------------- ---------------- ----------------
Orpheus Holdings LLC (6) .............. 2,071,428 2,589,285 0 0
Durham Capital Corporation (7) ........ 77,143 96,429 0 0
TOTAL ................................. 3,934,286 4,917,859 0 0
----------
(1) Includes for each selling shareholder the number of shares of common
stock issuable upon exercise of warrants held by such selling
shareholder.
(2) Pursuant to the terms of the registration rights agreement, we agreed
to register for the selling shareholders the number of shares of common
stock determined by multiplying 125% of all shares issuable upon
exercise of the warrants.
(3) Percentage ownership is based upon 30,543,763 shares of Common Stock of
the Registrant issued and outstanding as of the date of this
prospectus.
(4) The shares of common stock offered pursuant to this prospectus consist
of 125% of 1,071,429 shares issuable upon exercise of a warrant that
has a term of 10 years. This warrant is exercisable (or will become
exercisable upon the funding of a specific portion of the initial term
loan) at a price of $1.88 per share with respect to 214,286 shares,
$2.00 per share with respect to 214,286 shares, $3.00 per share with
respect to 214,286 shares, $3.75 per share with respect to 214,286
shares and $4.50 per share with respect to 214,285 shares. A portion of
the warrant will not become exercisable unless and until a specified
portion of the initial term loan is actually funded by the lenders. The
exercise prices are subject to adjustment for certain dilutive
issuances pursuant to the terms of the warrant. Stephen D. Sautel,
Managing Director of Guggenheim Partners Advisory Company, as advisor
to Midland National Life Insurance Company, exercises voting and
investment authority over the shares held by this selling shareholder.
Midland National Life Insurance Company is an affiliate of a
broker/dealer but certifies that it acquired the warrant in the
ordinary course of business for investment purposes, and at the time of
the purchase of the warrant, had no agreements or understandings,
directly or indirectly, with any person to distribute the shares.
(5) The shares of common stock offered pursuant to this prospectus consist
of 125% of 714,286 shares issuable upon exercise of a warrant that has
a term of 10 years. This warrant is exercisable (or will become
exercisable upon the funding of a specific portion of the initial term
loan) at a price of $1.88 per share with respect to 142,857 shares,
$2.00 per share with respect 142,857 shares, $3.00 per share with
respect to 142,857 shares, $3.75 per share with respect to 142,857
shares and $4.50 per share with respect to 142,858 shares. A portion of
the warrant will not become exercisable unless and until a specified
portion of the initial term loan is actually funded by the lenders. The
exercise prices are subject to adjustment for certain dilutive
issuances pursuant to the terms of the warrant. Stephen D. Sautel,
Managing Director of Guggenheim Partners Advisory Company, as advisor
to North American Company for Life and Health Insurance, exercises
voting and investment authority over the shares held by this selling
shareholder. North American Company for Life and Health Insurance is an
affiliate of a broker/dealer but certifies that it bought the shares in
the ordinary course of business for investment purposes, and at the
time of the purchase of the shares to be resold, had no agreements or
understandings, directly or indirectly, with any person to distribute
the shares.
(6) The shares of common stock offered pursuant to this prospectus consist
of 125% of 2,071,428 shares issuable upon exercise of a warrant that
has a term of 10 years. This warrant is exercisable (or will become
exercisable upon the funding of a specific portion of the initial term
loan) at a price of $1.88 per share with respect to 414,286 shares,
$2.00 per share with respect to 414,285 shares, $3.00 per share with
respect to 414,286 shares, $3.75 per share with respect to 414,285
shares and $4.50 per share with respect to 414,286 shares. A portion of
the warrant will not become exercisable unless and until a specified
portion of the initial term loan is actually funded by the lenders. The
exercise prices are subject to adjustment for certain dilutive
issuances pursuant to the terms of the warrant. Stephen D. Sautel,
Managing Director of Guggenheim Partners Advisory Company, as advisor
to Orpheus Holdings LLC, exercises voting and investment authority over
the shares held by this selling shareholder. Orpheus Holdings LLC is an
13
affiliate of a broker/dealer but certifies that it bought the shares in
the ordinary course of business for investment purposes, and at the
time of the purchase of the shares to be resold, had no agreements or
understandings, directly or indirectly, with any person to distribute
the shares.
(7) The shares of common stock offered pursuant to this prospectus consist
of 125% of 77,143 shares issuable upon exercise of a warrant that has a
term of 10 years. This warrant is exercisable at price of $1.88 per
share, subject to adjustment for certain dilutive issuances. A portion
of this warrant will not become exercisable unless and until a
specified portion of the initial term loan is actually funded by the
lenders. Sylvester F. Miniter, the President of Durham Capital
Corporation, exercises voting and investment authority over the shares
held by this selling shareholder.
14
PLAN OF DISTRIBUTION
The shares of our common stock offered pursuant to this prospectus may
be offered and sold from time to time by the selling shareholders listed in the
preceding section, or their donees, transferees, pledgees or other successors in
interest that receive such shares as a gift or other non-sale related transfer.
These selling shareholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale.
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o Block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o An exchange distribution in accordance with the rules of the
applicable exchange;
o Privately negotiated transactions;
o Settlement of short sales entered into after the date of this
prospectus;
o Broker-dealers may agree with the selling shareholders to sell
a specified number of such shares at a stipulated price per
share;
o Through put or call transactions relating to the shares;
o Through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
o A combination of any such methods of sale; and
o Any other method permitted by applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
In connection with the sale of our common stock or interests therein,
the selling shareholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
shareholders may also enter into option or other transactions with
15
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
Broker-dealers engaged by the selling shareholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling shareholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concenssions, commissions and similar selling
expenses, if any, attitributable to the sale of shares will be borne by a
selling shareholder. The selling shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares if liabilities are imposed on that person under the Securities Act.
The selling shareholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock from
time to time under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling shareholders to include the pledgee, transferee or
other successors in interest as selling shareholders under this prospectus.
The selling shareholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling shareholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
If the selling shareholders use this prospectus for any sale of the
shares of common stock, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each selling
shareholder has advised us that they have not entered into any agreements or
understandings with any person to distribute the resale shares. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of the resale shares by the selling shareholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by each selling shareholder without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
16
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the selling shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling shareholders or any other
person.
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 and it incorporates by
reference, rather than stating, certain important information included in our
filings with the SEC. You may read and copy any document we file at the SEC's
public reference room at 100 F. Street, N.E., 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,
2005 (File No. 000-26006);
2. Our Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2006 (File No. 000-26006)
3. Our Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2006 (File No. 000-26006);
4. Our Current Report on Form 8-K as filed on January 20, 2006
(File No. 000-26006);
5. Our Current Report on Form 8-K as filed on January 27, 2006
(File No. 000-26006);
6. Our Current Report on Form 8-K as filed on March 30, 2006
(File No. 000-26006);
7. Our Current Report on Form 8-K as filed on April 3, 2006 (File
No. 000-26006);
8. Our Current Report on Form 8-K as filed on May 16, 2006 (File
No. 000-26006);
9. Our Current Report on Form 8-K filed on June 14, 2006 (File
No. 000-26006);
10. Our Current Report on Form 8-K filed on June 21, 2006 (File
No. 000-26006);
17
11. Our Current Report on Form 8-K filed on June 30, 2006 (File
No. 000-26006);
12. Our Current Report on Form 8-K filed on July 6, 2006 (File No.
000-26006);
13. Our Current Report on Form 8-K filed on August 14, 2006 (File
No. 000-26006);
14. The description of our common stock contained in our
Registration Statements on Form 8-A as filed on May 14, 1995,
July 14, 1995 and August 7, 1995 (File No. 000-26006); 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, 2005, 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: Corazon
Reyes.
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, Sherman Oaks, California, has rendered
to Tarrant Apparel Group a legal opinion as to the validity of the common stock
covered by this prospectus.
EXPERTS
The consolidated financial statements and schedule of Tarrant Apparel
Group, incorporated by reference into this Prospectus and Registration
Statement, at December 31, 2005 and for the year then ended have been audited by
Singer Lewak Greenbaum & Goldstein LLP (our current independent registered
public accounting firm) and are included in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Tarrant Apparel
Group, incorporated by reference into this Prospectus and Registration
Statement, at December 31, 2004, and for each of the two years in the period
then ended have been audited by Grant Thornton LLP (our former independent
registered public accounting firm) as set forth in their report thereon
incorporated by reference, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
18
--------------------------------------------------------------------------------
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have not authorized
anyone else to provide you with different information. The selling shareholders
should not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement to this prospectus is accurate as of any date other than the date on
the cover page of this prospectus or any supplement.
--------------------------------------------------------------------------------
--------------------
TARRANT APPAREL GROUP
PROSPECTUS
--------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.
Registration fee - Securities and Exchange Commission............. $ 911
Legal Fees and Expenses........................................... 30,000
Accounting Fees and Expenses...................................... 30,000
Miscellaneous Expenses............................................ 500
------------
Total........................................................ $ 61,411
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Articles of Incorporation and its Bylaws
provide for the indemnification by the Registrant of each director, officer and
employee of the Registrant to the fullest extent permitted by the California
General Corporation Law, as the same exists or may hereafter be amended. Section
204 of the General Corporation Law of the State of California (the "California
Law") permits the limitation of the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation for
breach of a director's duties to the corporation and its shareholders under
certain conditions and subject to certain limitations. Section 317 of the
California General Corporation Law provides in relevant part that a corporation
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 317 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in the best interests of the corporation and
its shareholders. No indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation in the performance of that person's duty to the corporation and
its shareholders, unless and only to the extent that the court in which such
action or suit is or was pending shall determine upon application that, in view
of all the
II-1
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses and then only to the extent that the court shall
determine. California law further provides that nothing in the above described
provisions shall be deemed exclusive of any other rights to indemnification or
advancement of expenses to which any person may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
The Registrant has entered into separate but identical indemnity
agreements (the "Indemnity Agreements") with each director of the Registrant and
certain officers of the Registrant (the "Indemnitees"). Pursuant to the terms
and conditions of the Indemnity Agreements, the Registrant indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to pay
in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided, however, that Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Registrant and, with respect to any criminal action, had no reasonable cause
to believe Indemnitee's Conduct was unlawful.
The Registrant maintains an insurance policy pursuant to which the
directors and officers of the Registrant are insured, within the limits and
subject to the limitations of the policy, against certain expenses in connection
with the defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of their being or
having been such directors and officers.
II-2
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on May 4, 1995).
3.1.1 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Quarterly Report on Form
10Q for the quarter ending June 30, 2002).
3.1.2 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Quarterly Report on Form
10Q for the quarter ending June 30, 2002).
3.1.3 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Current Report on Form
8-K filed December 10, 2003).
3.2 Restated Bylaws of the Registrant (incorporated by reference to the
Registrant's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on May 4, 1995).
4.1 Specimen of Common Stock Certificate (incorporated by reference to an
Exhibit to Amendment No. 1 to Registration Statement on Form S-1 filed
on July 15, 1995).
4.2 Rights Agreement, dated as of November 21, 2003, by and between the
Registrant and Computershare Trust Company, as Rights Agent
(incorporated by reference to Exhibit 4.4 to the Current Report on Form
8-K filed on November 21, 2003).
4.3 Certificate of Determination of Preferences, Rights and Limitations of
Series B Preferred Stock (incorporated by reference to the Registrant's
Current Report on Form 8-K/A filed December 12, 2003).
5.1 Opinion and Consent of Stubbs Alderton & Markiles, LLP.*
10.1 Warrants Purchase Agreement dated June 16, 2006, by and among Tarrant
Apparel Group, Orpheus Holdings, LLC, North American Company for Life
and Health Insurance, Midland National Life Insurance Company and
Durham Capital Corporation.*
10.2 Registration Rights Agreement, dated June 16, 2006, by and among
Tarrant Apparel Group, Orpheus Holdings, LLC, North American Company
for Life and Health Insurance, Midland National Life Insurance Company
and Durham Capital Corporation.*
10.2.1 Amendment No. 1 to Registration Rights Agreement, dated as of August
11, 2006, by and among Tarrant Apparel Group, Orpheus Holdings, LLC,
North American Company for Life and Health Insurance, Midland National
Life Insurance Company and Durham Capital Corporation.*
10.3 Form of Warrants to Purchase Common Stock issued June 16, 2006.*
10.4 Warrant to Purchase Common Stock dated June 16, 2006, issued by Tarrant
Apparel Group to Durham Capital Corporation.*
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP, Independent
Registered Public Accounting Firm.
23.2 Consent of Grant Thornton LLP, Independent Registered Public Accounting
Firm.
23.3 Consent of Stubbs Alderton & Markiles, LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on signature page).*
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* Previously filed.
II-3
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this
section do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the Registrant pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus filed pursuant
to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining liability under the
Securities Act of 1933 to any purchaser, if the Registrant is subject to Rule
430C, each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 and (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of
II-4
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on September 8,
2006.
TARRANT APPAREL GROUP
By: /s/ Corazon Reyes
-----------------------------------
Corazon Reyes, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
* Chief Executive Officer and September 8, 2006
-------------------- Chairman of the Board of Directors
Gerard Guez (Principal Executive Officer)
* Vice Chairman of the Board of September 8, 2006
-------------------- Directors
Todd Kay
* Chief Financial Officer, September 8, 2006
-------------------- Treasurer and Director
Corazon Reyes
(Principal Financial and
-------------------- Accounting Officer) Director
Milton Koffman
Director
--------------------
Stephane Farouze
* Director September 8, 2006
--------------------
Mitchell Simbal
* Director September 8, 2006
--------------------
Joseph Mizrachi
* Director September 8, 2006
--------------------
Simon Mani
*By: /s/ Corazon Reyes
----------------------------------
Corazon Reyes, as Attorney-In-Fact
S-1
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Registrant (incorporated by
reference to the Registrant's Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on May 4, 1995).
3.1.1 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Quarterly Report on Form
10Q for the quarter ending June 30, 2002).
3.1.2 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Quarterly Report on Form
10Q for the quarter ending June 30, 2002).
3.1.3 Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Registrant's Current Report on Form
8-K filed December 10, 2003).
3.2 Restated Bylaws of the Registrant (incorporated by reference to the
Registrant's Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on May 4, 1995).
4.1 Specimen of Common Stock Certificate (incorporated by reference to an
Exhibit to Amendment No. 1 to Registration Statement on Form S-1 filed
on July 15, 1995).
4.2 Rights Agreement, dated as of November 21, 2003, by and between the
Registrant and Computershare Trust Company, as Rights Agent
(incorporated by reference to Exhibit 4.4 to the Current Report on Form
8-K filed on November 21, 2003).
4.3 Certificate of Determination of Preferences, Rights and Limitations of
Series B Preferred Stock (incorporated by reference to the Registrant's
Current Report on Form 8-K/A filed December 12, 2003).
5.1 Opinion and Consent of Stubbs Alderton & Markiles, LLP.*
10.1 Warrants Purchase Agreement dated June 16, 2006, by and among Tarrant
Apparel Group, Orpheus Holdings, LLC, North American Company for Life
and Health Insurance, Midland National Life Insurance Company and
Durham Capital Corporation.*
10.2 Registration Rights Agreement, dated June 16, 2006, by and among
Tarrant Apparel Group, Orpheus Holdings, LLC, North American Company
for Life and Health Insurance, Midland National Life Insurance Company
and Durham Capital Corporation.*
10.2.1 Amendment No. 1 to Registration Rights Agreement, dated as of August
11, 2006, by and among Tarrant Apparel Group, Orpheus Holdings, LLC,
North American Company for Life and Health Insurance, Midland National
Life Insurance Company and Durham Capital Corporation.*
10.3 Form of Warrants to Purchase Common Stock issued June 16, 2006.*
10.4 Warrant to Purchase Common Stock, dated June 16, 2006, issued by
Tarrant Apparel Group to Durham Capital Corporation.*
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP, Independent
Registered Public Accounting Firm.
23.2 Consent of Grant Thornton LLP, Independent Registered Public Accounting
Firm.
23.3 Consent of Stubbs Alderton & Markiles, LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on signature page).*
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* Previously filed.
EX-1