SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
|X| Definitive Proxy Statement Commission Only (as permitted
|_| Definitive Additional Materials by Rule 14a-6(e)(2)
|_| Soliciting Material Pursuant to
ss.240.14a-12
TARRANT APPAREL GROUP
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(Name of Registrant as Specified in Its Charter)
================================================================================
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
================================================================================
(2) Aggregate number of securities to which transaction applies:
================================================================================
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount previously paid:
================================================================================
(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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TARRANT APPAREL GROUP
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
TIME.......................... 10:00 a.m. Pacific Daylight Time on Tuesday,
May 27, 2008.
PLACE......................... Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
ITEMS OF BUSINESS............. (1) To elect four Class I members and
four Class II members of the Board
of Directors.
(2) To ratify the appointment of Singer
Lewak Greenbaum & Goldstein LLP as
our independent registered public
accounting firm for the year ending
December 31, 2008.
(3) To transact such other business as
may properly come before the
Meeting and any adjournment or
postponement.
RECORD DATE................... You can vote if at the close of business
on April 7, 2008, you were a shareholder
of Tarrant Apparel Group.
PROXY VOTING.................. All shareholders are cordially invited to
attend the Annual Meeting in person.
However, to ensure your representation at
the Annual Meeting, you are urged to vote
promptly by signing and returning the
enclosed Proxy card.
April 23, 2008 /s/ Gerard Guez
----------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
TARRANT APPAREL GROUP
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(323) 780-8250
PROXY STATEMENT
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These Proxy materials are delivered in connection with the solicitation by the
Board of Directors of Tarrant Apparel Group, a California corporation
("Tarrant," the "Company", "we", or "us"), of Proxies to be voted at our 2008
Annual Meeting of Shareholders (the "Annual Meeting") and at any adjournments or
postponements.
You are invited to attend our Annual Meeting of Shareholders on Tuesday, May 27,
2008, beginning at 10:00 a.m. Pacific Daylight Time. The meeting will be held at
our corporate headquarters, 3151 East Washington Boulevard, Los Angeles,
California, 90023.
It is anticipated that the 2007 Annual Report and this Proxy Statement and the
accompanying Proxy will be mailed to shareholders on or about April 30, 2008.
SHAREHOLDERS ENTITLED TO VOTE. Holders of our common stock at the close of
business on April 7, 2008 are entitled to receive this notice and to vote their
shares at the Annual Meeting. Common stock is the only outstanding class of
securities entitled to vote at the Annual Meeting. As of April 7, 2008, there
were 32,043,763 shares of common stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a shareholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All shareholders can vote by written Proxy card. Your submission of the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE meeting. If you are a shareholder of record, you may
revoke your Proxy at any time before the meeting either by filing with our
Secretary, at our principal executive offices, a written notice of revocation or
a duly executed Proxy bearing a later date, or by attending the Annual Meeting
and expressing a desire to vote your shares in person. All shares entitled to
vote and represented by properly executed Proxies received prior to the Annual
Meeting, and not revoked, will be voted at the Annual Meeting in accordance with
the instructions indicated on those Proxies. If no instructions are indicated on
a properly executed Proxy, the shares represented by that Proxy will be voted as
recommended by the Board of Directors.
QUORUM. The presence, in person or by Proxy, of a majority of the votes entitled
to be cast by the shareholders entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the number of shares present at the Annual Meeting for determining
the presence of a quorum. Broker non-votes occur when a broker holding customer
securities in street name has not received voting instructions from the customer
on certain non-routine matters and, therefore, is barred by the rules of the
applicable securities exchange from exercising discretionary authority to vote
those securities.
VOTING. Each share of our common stock is entitled to one vote on each matter
properly brought before the meeting. Abstentions will be counted toward the
tabulation of votes cast on proposals submitted to shareholders and will have
the same effect as negative votes, while broker non-votes will not be counted as
votes cast for or against such matters.
ELECTION OF DIRECTORS. Our Articles of Incorporation do not authorize cumulative
voting. In the election of directors, the four candidates in each Class
receiving the highest number of votes at the Annual Meeting will be elected. If
any nominee is unable or unwilling to serve as a director at the time of the
Annual Meeting, the Proxies will be voted for such other nominee(s) as shall be
designated by the current Board of Directors to fill any vacancy. We have no
reason to believe that any nominee will be unable or unwilling to serve if
elected as a director.
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS. The ratification of the
appointment of Singer Lewak Greenbaum & Goldstein LLP as our independent
registered public accounting firm for the year ending December 31, 2008 will
require the affirmative vote of a majority of the shares of common stock present
or represented and entitled to vote at the Annual Meeting.
1
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matter to be raised at the Annual Meeting.
In the event a shareholder proposal was not submitted to us prior to March 18,
2008, the enclosed Proxy will confer authority on the Proxyholders to vote the
shares in accordance with their best judgment and discretion if the proposal is
presented at the Meeting. As of the date hereof, no shareholder proposal has
been submitted to us, and management is not aware of any other matters to be
presented for action at the Meeting. However, if any other matters properly come
before the Meeting, the Proxies solicited hereby will be voted by the
Proxyholders in accordance with the recommendations of the Board of Directors.
Such authorization includes authority to appoint a substitute nominee for any
Board of Directors' nominee identified herein where death, illness or other
circumstance arises which prevents such nominee from serving in such position
and to vote such Proxy for such substitute nominee.
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ITEM 1: ELECTION OF DIRECTORS
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Item 1 is the election of four Class I and four Class II members of the Board of
Directors. Our Articles of Incorporation provide that the Board of Directors is
divided into two classes which are elected for staggered two-year terms.
Generally, one of the two classes is elected each year to succeed the directors
whose terms are expiring. However, since we did not hold an annual meeting of
shareholders in 2007, we are providing for the election of both the Class I
directors that were scheduled for election at the 2007 annual meeting and the
Class II directors scheduled for election at this year's Annual Meeting. Our
Bylaws provide that the number of directors shall be fixed from time to time
exclusively by the Board of Directors, but shall not be less than six nor more
than eleven. The Board of Directors has fixed the number of directors
constituting the entire Board of Directors at no more than nine directors, and
there is currently one vacancy.
The Class I directors whose terms were to expire at the 2007 annual meeting are
Patrick Chow, Stephane Farouze, Milton Koffman and Mitchell Simbal. The Class II
directors whose terms expire at the 2008 Annual Meeting are Gerard Guez, Todd
Kay, Joseph Mizrachi and Simon Mani. The Board of Directors, upon recommendation
of the independent directors, has nominated Patrick Chow, Stephane Farouze,
Milton Koffman and Mitchell Simbal to serve as Class I Directors for terms
expiring in 2009 and Gerard Guez, Todd Kay, Joseph Mizrachi and Simon Mani to
serve as Class II directors for terms expiring in 2010. There is currently one
vacancy among the Class II directors, and the Board of Directors has not yet
identified a suitable candidate for this vacancy.
Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the nominees named below. If any nominee is unwilling to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. We have no reason to believe that any nominee will be
unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees
directors:
CLASS I DIRECTOR NOMINEES CLASS II DIRECTOR NOMINEES
------------------------- --------------------------
Patrick Chow Gerard Guez
Stephane Farouze Todd Kay
Milton Koffman Simon Mani
Mitchell Simbal Joseph Mizrachi
If elected, the foregoing four Class I director nominees are expected to serve
until the 2009 annual meeting of shareholders and the foregoing four Class II
director nominees are expected to serve until the 2010 annual meeting of
shareholders. The four nominees for election as Class I directors and the four
nominees for election as Class II directors at the Annual Meeting who receive
the highest number of affirmative votes will be elected.
The principal occupation and certain other information about the nominees and
certain executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
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CLASS I DIRECTOR NOMINEES: TERMS EXPIRING IN 2009
-------------------------------------------------
PATRICK CHOW Patrick Chow was appointed as a director in
November 2007, at the time he was named our
Chief Financial Officer. Prior to being
named Chief Financial Officer, Mr. Chow
joined Tarrant Apparel Group in March 2007
as our Senior Vice President, Finance. Mr.
Chow had previously served as our Chief
Financial Officer and as a director from
January 2002 through August 2004. From
August 2004 until April 2005, Mr. Chow was a
consultant for us and other companies,
providing financial and accounting services.
He joined Blue Holdings, Inc. (Nasdaq: BLUE)
as Chief Financial Officer in April 2005,
and served in that capacity until December
31, 2006. Mr. Chow has a Bachelor of Arts
degree from the University of Hong Kong and
two diplomas in Banking and Financial
Studies from the Chartered Institute of
Bankers United Kingdom.
DIRECTOR SINCE: 2007 AGE: 54
STEPHANE FAROUZE Stephane Farouze has served as a director
since May 2003. Mr. Farouze is currently a
Managing Director with Deutsche Bank AG.
Previously, from May 2003 to mid 2006, Mr.
Farouze was Managing Director of Paradigm
Global Advisors. From March 2000 to November
2000, Mr. Farouze was employed as the Global
Head of Sales and Restructuring of Societe
General Asset Management. From March 1998 to
February 2000, Mr. Farouze was Head of
Foreign Exchanges for the Italian Market for
BNP. Mr. Farouze received a Bachelor of
Science in Applied Arts and Sciences and a
Business Administration (Finance) degree
from San Diego State University in 1992.
DIRECTOR SINCE: 2003 AGE: 39
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
MILTON KOFFMAN Milton Koffman has served as a director
since November 2001. Since 1997, Mr. Koffman
has been the Chairman of the Board for New
Valu, Inc., a multi- faceted provider of
investment capital, commercial loans and
other financial services for various
operating companies. Additionally, he is a
founder and director of Global Credit
Services, a leading provider of business
information and analysis for manufacturing,
financial, lending and real estate
companies. Mr. Koffman has previously served
on the boards of IEC Electronics, Jayark
Corporation, Sattlers Department Stores,
Walter Reed Theaters, Scoreboard, Inc. and
the Gruen Watch Company. Mr. Koffman
received a B.S. from Ohio State University
in 1945.
DIRECTOR SINCE: 2001 AGE: 84
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
MITCHELL SIMBAL Mitchell Simbal has served as a director
since June 2001. Since 1997, Mr. Simbal has
been Senior Vice President of Retail
Operations for Harrah's Entertainment, which
includes Caesars Palace, Paris Las Vegas,
Bally's and Flamingo Hilton. In this
position, Mr. Simbal is responsible for a
$170 million retail division. Mr. Simbal has
a B.S. in accounting from the University of
Hartford.
DIRECTOR SINCE: 2001 AGE: 54
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
4
CLASS II DIRECTOR NOMINEES: TERMS EXPIRING IN 2010
--------------------------------------------------
GERARD GUEZ Gerard Guez founded Tarrant Apparel Group in
1988 and has served as our Chairman of the
Board since inception and as Chief Executive
Officer from inception until 2001 and again
from March 2003 through August 2004. Mr.
Guez was re-appointed as Interim Chief
Executive Officer, effective March 31, 2006.
Mr. Guez also founded Tarrant Company
Limited, our Hong Kong subsidiary, in 1985,
and he has served as its Chairman since
inception and Chief Executive Officer from
1985 through October 2001. Prior to founding
Tarrant Company Limited, Mr. Guez served as
the President of Sasson Jeans, L.A., Inc.,
which was a manufacturer and distributor of
denim apparel under the "Sasson" license.
DIRECTOR SINCE: 1998 AGE: 52
TODD KAY Todd Kay has served as our President from
1988 to September 1999 and from March 2000
to August 2003, and has served as Vice
Chairman since September 7, 1999. Mr. Kay
has also served as a director since 1988 and
as a director of Tarrant Company Limited
since 1986. Prior to joining us, Mr. Kay was
a sales manager for Sasson Jeans, L.A., Inc.
from 1979 to 1980 and served as President of
JAG Beverly Hills, Inc., an apparel
manufacturer, from 1980 to 1985.
DIRECTOR SINCE: 1998 AGE: 51
SIMON MANI Simon Mani has served as a director since
December 2004. Since 1994, Mr. Mani has
served as General Manager of Mani Brothers
Real Estate Investment Group, a
privately-held real estate investment firm
that owns, renovates, operates, manages, and
leases over 1 million square feet of
commercial property. Previously, Mr. Mani
served as President of the Sara Lee Fresh
division of Sara Lee Bakery from 1992 until
2001. In this position Mr. Mani supervised
over 1,500 employees and managed over 500
distributors. Mr. Mani and his brother
founded the International Baking Company,
which the Manis sold to Sara Lee Bakery in
1992.
DIRECTOR SINCE: 2004 AGE: 56
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
JOSEPH MIZRACHI Joseph Mizrachi has served as a director
since June 2001. Since 1982, Mr. Mizrachi
has been engaged in capital funding to
finance buyouts of small and medium size
companies. He has also been the Chairman of
the Board of Midwest Properties Management,
Inc. since 1980, which is engaged in the
management of real estate, and he was
formerly a member of the board of directors
of American Realty Investors Inc. (NYSE) and
he was a director and member of the loan
committee of Heritage Bank in Washington,
DC. Mr. Mizrachi received an undergraduate
degree in Economics and Political Science in
1968 and a Master's degree in Business
Administration in Finance and Marketing in
1971, both from the Hebrew University in
Jerusalem, Israel. He became a member of the
American Society of Chartered Life
Underwriter (CLU) in 1973 and a Chartered
Financial Consultant (CFC) in 1982. In 1978,
he received another Master's degree in
Business Administration and Financial
Counseling (MFS) from The American College
in Bryn Mawr, Pennsylvania.
DIRECTOR SINCE: 2001 AGE: 62
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
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OTHER EXECUTIVE OFFICERS
------------------------
HENRY CHU Henry Chu has served as President of Tarrant
Company Limited, our Hong Kong subsidiary,
since September 2001. Mr. Chu is also
currently a director of Tarrant Company
Limited a position he has held since 2002.
Prior to joining Tarrant Company Limited,
Mr. Chu was the founder and owner of a
garment manufacturing company. Mr. Chu has
over 30 years of experience in the garment
industry.
AGE: 70
CHARLES GHAILIAN Charles Ghailian joined us in March 1999
upon acquisition of certain assets of CMG,
Inc., where he served as Chief Executive
Officer since 1988. CMG, Inc. designed,
produced and sold private label and CHAZZZ
branded woven and knit apparel for women,
children and men. He was named President of
Chazzz, a Division of Tag Mex, Inc., our
wholly-owned subsidiary. In April 2002, Mr.
Ghailian was appointed President of Tag Mex,
Inc. In addition to managing the day-to-day
operations of Tag Mex, Inc., Mr. Ghailian
oversees developments with certain
customers, including Sears, J.C. Penney and
Mervyn's.
AGE: 55
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
-----------------------------------------------------
MEETINGS, COMMITTEES AND INDEPENDENCE. The Board of Directors held eight
meetings during fiscal 2007 and took action by written consent without a meeting
four times during same fiscal year. The Board of Directors has the following
standing committees: Audit Committee and Compensation Committee. While directors
generally attend annual shareholder meetings, we have not established a specific
policy with respect to members of the Board of Directors attending annual
meetings.
As required under The NASDAQ Stock Market ("NASDAQ") listing standards, a
majority of the members of a listed company's Board of Directors must qualify as
"independent," as affirmatively determined by the Board of Directors. The Board
consults with the Company's counsel to ensure that the Board's determinations
are consistent with relevant securities and other laws and regulations regarding
the definition of "independent," including those set forth in pertinent listing
standards of the NASDAQ, as in effect from time to time. Consistent with these
considerations, after review of all relevant transactions or relationships
between each director, or any of his or her family members, and the Company, its
senior management and its independent auditors, the Board has affirmatively
determined that the following five directors are independent directors within
the meaning of the applicable NASDAQ listing standards: Messrs Farouze, Koffman,
Mizrachi, Mani and Simbal. In making this determination, the Board found that
none of these directors had a material or other disqualifying relationship with
the Company.
AUDIT COMMITTEE. The Audit Committee currently consists of Messrs. Farouze,
Koffman, Mizrachi, Mani and Simbal, all of whom are considered "independent"
under Rule 4350(d)(2)(A)of the NASDAQ listing standards. The Board of Directors
has determined that Mitchell Simbal is an audit committee financial expert, as
defined in Item 401(h)(2) of Regulation S-K. The primary purposes of the Audit
Committee are (1) to review the scope of the audit and all non-audit services to
be performed by our independent auditors and the fees incurred by us in
connection therewith, (2) to review the results of such audit, including the
independent accountants' opinion and letter of comment to management and
management's response thereto, (3) to review with our independent accountants
our internal accounting principles, policies and practices and financial
reporting, (4) to engage our independent auditors and (5) to review our
quarterly and annual financial statements prior to public issuance. The role and
responsibilities of the Audit Committee are more fully set forth in a written
Charter adopted by the Board of Directors. A copy of the written Charter of the
Audit Committee was included as an appendix to our proxy statement for the 2007
annual meeting of shareholders. The Audit Committee held five meetings during
fiscal 2007.
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COMPENSATION COMMITTEE. The Compensation Committee currently consists of Messrs.
Farouze, Koffman, Mizrachi, Mani and Simbal. The Compensation Committee is
responsible for considering and making recommendations to the Board of Directors
regarding executive compensation and is responsible for our stock option and
executive incentive compensation plans. The Compensation Committee does not have
a written charter. The Compensation Committee held five meetings during fiscal
2007 and took action by written consent without a meeting one time during same
fiscal year.
Please see "Compensation Discussion and Analysis" section below for further
information regarding our Compensation Committee and our compensation policy.
DIRECTOR NOMINATIONS. We do not currently have a standing nominating committee.
The Board of Directors has adopted resolutions requiring that all director
nominations be approved or recommended for approval by a majority of the
independent directors (as defined by NASDAQ), voting in executive session (the
"Independent Board Members").
The Independent Board Members review those directors who are candidates for
re-election to our Board of Directors, and make the determination to nominate a
candidate who is a current member of the Board of Directors for re-election for
the next two-year term. The nominating committee's methods for identifying
candidates for election to the Board of Directors (other than those proposed by
our shareholders, as discussed below) include the solicitation of ideas for
possible candidates from a number of sources--members of the Board of Directors;
our executives; individuals personally known to the members of the Board of
Directors; and other research. We may also from time to time retain one or more
third-party search firms to identify suitable candidates. The Independent Board
Members also nominate outside candidates for inclusion on the Board of
Directors.
A Tarrant shareholder may nominate one or more persons for election as a
director at an annual meeting of shareholders if the shareholder complies with
the notice, information and consent provisions contained in our Bylaws. In
addition, the notice must be made in writing and include (1) the qualifications
of the proposed nominee to serve on the Board of Directors, (2) the principal
occupations and employment of the proposed nominee during the past five years,
(3) directorships currently held by the proposed nominee and (4) a statement
that the proposed nominee has consented to the nomination. The recommendation
should be addressed to our Secretary.
Among other matters, the Independent Board Members:
o Review the desired experience, mix of skills and other
qualities to assure appropriate Board composition, taking into
account the current Board members and the specific needs of
Tarrant and the Board;
o Conduct candidate searches, interview prospective candidates
and conduct programs to introduce candidates to Tarrant, its
management and operations, and confirm the appropriate level
of interest of such candidates;
o Recommend to the Board qualified candidates who bring the
background, knowledge, experience, independence, skill sets
and expertise that would strengthen and increase the diversity
of the Board;
o Conduct appropriate inquiries into the background and
qualifications of potential nominees; and
o Review the suitability for continued service as a director of
each Board member when he or she has a significant change in
status, such as an employment change, and recommend whether or
not such director should be re-nominated.
Based on the foregoing, the Independent Board Members recommended the nomination
of Patrick Chow, Stephane Farouze, Milton Koffman and Mitchell Simbal for
re-election as Class I directors and Gerard Guez, Todd Kay, Simon Mani and
Joseph Mizrachi for re-election as Class II directors to the Board of Directors,
subject to shareholder approval.
All directors except Todd Kay and Stephane Farouze attended 75% or more of all
the meetings of the Board of Directors and those committees on which he or she
served in fiscal 2007.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The Compensation
Committee of our Board of Directors currently consists of Messrs. Farouze,
Koffman, Mizrachi, Mani and Simbal. None of these individuals was an officer or
employee of Tarrant at any time during fiscal 2007. None of our current
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executive officers has served as a member of the board of directors or
compensation committee of any entity for which a member of our Board of
Directors or Compensation Committee has served as an executive officer.
SHAREHOLDER COMMUNICATIONS. Holders of our securities can send communications to
the Board of Directors via mail or telephone to the Secretary at our principal
executive offices.
8
ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
Item 2 is the ratification of Singer Lewak Greenbaum & Goldstein LLP ("SLGG") as
our independent registered public accounting firm for the year ending December
31, 2008. SLGG audited our consolidated financial statements for the fiscal
years ended December 31, 2007, 2006 and 2005. The Audit Committee of the Board
of Directors recommended and the Board of Directors has selected, subject to
ratification by a majority vote of the shares of common stock present or
represented and entitled to vote at the Annual Meeting, the firm of SLGG as our
independent registered public accounting firm for the current fiscal year ending
December 31, 2008. We anticipate that a representative of SLGG will attend the
Annual Meeting for the purpose of responding to appropriate questions. At the
Annual Meeting, a representative of SLGG will be afforded an opportunity to make
a statement if he or she so desires.
While there is no legal requirement that this proposal be submitted to
shareholders, it will be submitted at the Annual Meeting nonetheless, as the
Board of Directors believes that the selection of auditors to audit our
consolidated financial statements is of sufficient importance to seek
shareholder approval. If the shareholders do not ratify this appointment, other
firms of certified public accountants will be considered by the Board of
Directors upon recommendation of the Audit Committee.
FEES PAID TO SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
The following table sets forth fees for services billed to us by Singer
Lewak Greenbaum & Goldstein LLP, our independent registered public accounting
firm, for the fiscal years ended December 31, 2007 and 2006:
2007 2006
-------- --------
Audit fees (1) ................. $379,000 $391,000
Audit-related fees (2) ......... -- --
Tax fees (3) ................... -- --
All other fees (4) ............. -- 99,000
-------- --------
Total ..................... $379,000 $490,000
======== ========
------------------------------
(1) Audit fees include the audit of our annual financial
statements, review of financial statements included in our
Form 10-Q quarterly reports, and services that are normally
provided by the independent registered public accounting firm
in connection with statutory and regulatory filings or
engagements for those fiscal years.
(2) Audit related fees consist of assurance and related services
that are reasonably related to the performance of the audit or
review of our financial statements and are not reported above
under audit fees.
(3) Tax fees consist of services for tax compliance, tax advice
and tax planning.
(4) All other fees in 2006 were for due diligence and related
services in connection with financing and acquisition
activities.
All of the services described above were approved by our Audit Committee.
The ratification of SLGG as our independent registered public accounting firm
for the fiscal year ending December 31, 2008 will require the affirmative vote
of a majority of the shares of common stock present or represented and entitled
to vote at the Annual Meeting. All Proxies will be voted to approve the
ratification of the appointment of the independent public accountants unless a
contrary vote is indicated on the enclosed Proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF SINGER LEWAK GREENBAUM & GOLDSTEIN LLP AS OUR INDEPENDENT
PUBLIC ACCOUNTANTS.
9
REPORT OF AUDIT COMMITTEE
-------------------------
The Audit Committee of the Board of Directors, which consists of independent
directors (as that term is defined in Rule 4200(a)(15) of the NASDAQ Marketplace
Rules), has furnished the following report:
The Audit Committee assists the Board of Directors in overseeing and monitoring
the integrity of our financial reporting process, its compliance with legal and
regulatory requirements and the quality of its internal and external audit
processes. The role and responsibilities of the Audit Committee are set forth in
a written Charter adopted by the Board of Directors. The Audit Committee reviews
and reassesses the Charter annually and recommends any changes to the Board of
Directors for approval.
The Audit Committee is responsible for overseeing our overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2007, the Audit Committee:
- Reviewed and discussed the audited financial statements for the year ended
December 31, 2007 with management and Singer Lewak Greenbaum & Goldstein
LLP, our independent registered public accounting firm;
- Discussed with SLGG the matters required to be discussed by Statement on
Auditing Standards No. 61 relating to the conduct of the audit; and
- Received written disclosures and the letter from SLGG regarding its
independence as required by Independence Standards Board Standard No. 1.
The Audit Committee discussed with the Auditors their independence.
Based on the Audit Committee's review of the audited financial statements and
discussions with management and the Auditors, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in our
Annual Report on Form 10-K for the year ended December 31, 2007 for filing with
the SEC.
The Audit Committee also considered the status of pending litigation and other
areas of oversight relating to the financial reporting and audit process that
the committee determined appropriate.
The Audit Committee has considered whether the provision of non-audit services
is compatible with maintaining the principal accountant's independence.
AUDIT COMMITTEE
Mitchell Simbal, Chairman
Stephane Farouze
Milton Koffman
Joseph Mizrachi
Simon Mani
10
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
------------------------------------------------
COMPENSATION DISCUSSION AND ANALYSIS
Tarrant Apparel Group's compensation program for senior executives is
administered by the Compensation Committee of our Board of Directors. The
Compensation Committee is responsible for considering and making recommendations
to the Board of Directors regarding executive compensation and is responsible
for administering our stock option and executive incentive compensation plans.
The Compensation Committee is committed to ensure that its compensation plan is
consistent with our company goals and objectives and the long term interests of
its shareholders.
Our named executive officers for 2007 were as follows:
o Gerard Guez, Chairman of the Board and Interim Chief Executive
Officer;
o Todd Kay, Vice Chairman of the Board;
o Patrick Chow, Chief Financial Officer (appointed November 28,
2007);
o David Burke, former Chief Financial Officer (served as CFO
from March 28, 2007 through November 28, 2007);
o Corazon Reyes, former Chief Financial Officer (resigned as CFO
as of March 28, 2007);
o Charles Ghailian, President of our subsidiary, Tag Mex, Inc.;
and
o Henry Chu, President of our subsidiary, Tarrant Company
Limited.
OVERVIEW OF COMPENSATION PHILOSOPHY AND OBJECTIVES
Our compensation programs are designed to deliver a compensation package which
is competitive in attracting and retaining key executive talent in the garment
industry. Different programs are geared to short and longer term performance
with the goal of increasing shareholder value over the long term. To achieve
these objectives, the Compensation Committee has established an incentive
program for our executive officers based on meeting specific revenue and margin
criteria in which long term continued improvement in pre-tax profit is the goal.
More specifically, the Compensation Committee believes that our executive
compensation should encompass the following:
o help attract and retain the most qualified individuals by
being competitive with compensation packages paid to persons
having similar responsibilities and duties in comparable
businesses;
o motivate and reward individuals who help us achieve our short
term and long term objectives and thereby contribute
significantly to the success of our company;
o relate to the value created for shareholders by being directly
tied to our financial performance and condition and the
particular executive officer's contribution; and
o reflect the qualifications, skills, experience, and
responsibilities of the particular executive officer.
The Compensation Committee has approved a compensation structure for the named
executive officers, determined on an individual basis, which incorporates four
key components: base salary, annual discretionary incentive payments, stock
options and other benefits.
In connection with its compensation determinations, the Compensation Committee
seeks, and is significantly influenced by, the views of the Chief Executive
Officer with respect to appropriate compensation levels of the other officers.
EXECUTIVE COMPENSATION COMPONENTS
For the year ended December 31, 2007, the principal components of compensation
for the named executive officers were:
11
o annual base salary;
o annual discretionary incentive compensation;
o stock options; and
o retirement and other benefits.
ANNUAL BASE SALARY
In general, base salary for each employee, including the named executive
officers, is established based on the individual's job responsibilities,
performance and experience; our size relative to competitors; the competitive
environment; and a general view as to available resources.
For our Chief Executive Officer, the Compensation Committee's practice is to
review the base salary to ensure competitiveness in the market place. Currently,
our Chairman of the Board, Gerard Guez, is also serving as our Interim CEO. No
adjustments were made to Mr. Guez's compensation in 2006 to reflect the interim
added responsibility. However, in 2007, the Compensation Committee approved an
increase to Mr. Guez's annual salary to $750,000, effective January 1, 2007, in
part to compensate for the added responsibilities of acting as Chief Executive
Officer. The Compensation Committee considers the base salaries of the named
executives to ensure they take into account their performance, experience and
retention value and that salary levels continue to be competitive with companies
of similar size and complexity.
ANNUAL DISCRETIONARY INCENTIVE COMPENSATION
Named executive officers are eligible to receive discretionary annual cash
incentive bonuses. We believe that annual incentive compensation should be
determined with specific reference to our overall performance and goals, as well
as the performance and goals of the division or function over which each
individual executive has primary responsibility. In this regard, the
Compensation Committee considers both quantitative and qualitative factors. At
this time, the incentive program has not yet been linked with a set of clear
objectives.
Charles Ghailian received a discretionary cash bonus in 2007 of $83,000, which
was awarded to Mr. Ghailian based on his individual performance during the year.
STOCK OPTIONS AND STOCK AWARDS
We provide a long term incentive opportunity for each of the named executive
officers through awards of stock options. Our stock option program is a long
term plan designed to create a link between executive compensation and our
financial performance, provide an opportunity for increased equity ownership by
executives, and maintain competitive levels of total compensation.
In the case of recommended stock option awards, the Compensation Committee
reviews the recommendation of senior management and tests fairness before
approving the stock awards. All stock options have been granted at an exercise
price equal to the closing market price of our common stock on the date of
grant. Stock options generally vest in four equal annual installments over a
period of four years; however, options will immediately vest in full upon a
change on control of the Company. Stock options expire ten years from date of
grant.
In 2007, no named executive officers received stock option awards other than
Patrick Chow, David Burke and Charles Ghailian. Stock option awards are granted
based on individual merit and contribution to the Company. In addition, in
November 2007, Mr. Ghailian was granted an award to purchase 2,000,000 shares of
our common stock at $1.13, which offer had to be accepted by the employee on or
before December 15, 2007. The award was immediately vested and was granted under
the 2006 Plan. On December 14, 2007, Mr. Ghailian exercised his right to
purchase 1,500,000 of the shares subject to the award. Mr. Ghailian's option
grants and stock purchase award were granted in recognition for his prior
contributions to Tarrant and to provide additional incentive to maintain his
services in the future, and due in part in the fact that Mr. Ghailian has
assumed greater responsibility with respect to managing portions of our private
label business.
12
RETIREMENT BENEFITS
We maintain a 401(k) plan for our employees. Named executive officers
participate in these plans on the same terms as other eligible employees,
subject to any legal limits on the amount that may be contributed by executives
under the plans. We make a "matching" contribution equal to 100% of the
employee's contribution up to 5% of the employee's annual compensation.
OTHER BENEFITS
o MEDICAL BENEFITS. Our employees have a choice of three
coverage options under our company-sponsored group health
insurance plan. Each option covers the same services and
supplies but differs in the quality of provider network.
During 2007, we fully funded the HMO portion of the employee
coverage.
o DENTAL BENEFITS. We maintain a group dental plan that covers
preventive, basic and major services for employees and
eligible dependents. During 2007, we fully funded the HMO
portion of our California employee coverage and the PPO
coverage for our New York employee coverage.
o LIFE INSURANCE. We maintain a group life insurance plan that
provides for basic life and accidental death and dismemberment
coverage ranging from $10,000 to $50,000 depending on the
employee classification. We pay the premiums under this plan.
o VACATION. All employees are eligible for vacation based on
years of service.
o OTHER PERQUISITES. Vehicle and car allowances have been
provided for certain named executives. We do not generally
provide other perquisites for other employees.
o PRIVATE PLANE. From time to time our executives use a private
plan owned by 477 Aviation LLC, a company owned by Gerard Guez
for business purposes. We reimburse Mr. Guez for the fuel and
related expenses incurred by 477 Aviation LLC for our
executives' business use of the aircraft. For 2007, the amount
of expenses reimbursed was approximately $257,000.
DEDUCTIBILITY OF COMPENSATION EXPENSES
Pursuant to Section 162(m) under the Internal Revenue Code, certain compensation
paid to executive officers in excess of $1 million is not tax deductible, except
to the extent such excess constitutes performance-based compensation. The
Compensation Committee has and will continue to carefully consider the impact of
Section 162(m) when establishing incentive compensation plans and could, in
certain circumstances, approve and authorize compensation that is not fully tax
deductible.
ACCOUNTING AND TAX CONSIDERATIONS
We consider the accounting implications of all aspects of our executive
compensation program. Our executive compensation program is designed to achieve
the most favorable accounting (and tax) treatment possible as long as doing so
does not conflict with the intended plan design or program objectives.
13
REPORT OF COMPENSATION COMMITTEE
--------------------------------
The Compensation Committee of our Board of Directors currently consists of
Stephane Farouze, Milton Koffman, Joseph Mizrachi, Simon Mani and Mitchell
Simbal. The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is responsible for administering our stock option and executive incentive
compensation plans.
The Compensation Committee has reviewed and discussed with management the
Compensation Discussion and Analysis included in this Proxy Statement. Based on
the review and discussion with management, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in Tarrant Apparel Group's Proxy Statement on Schedule 14A.
COMPENSATION COMMITTEE
Stephane Farouze, Chairman
Milton Koffman
Joseph Mizrachi
Simon Mani
Mitchell Simbal
14
SUMMARY COMPENSATION TABLE
The following table sets forth, as to each person serving as Chief Executive
Officer and Chief Financial Officer during 2007, and the three most highly
compensated executive officers other than the Chief Executive Officer and Chief
Financial Officer who were serving as executive officers at the end of 2007
whose compensation exceeded $100,000 (referred to as "named executive
officers"), information concerning all compensation paid for services to us in
all capacities for 2006 and 2007.
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
OPTION ALL OTHER
NAME AND SALARY BONUS AWARDS COMPENSATION TOTAL
PRINCIPAL POSITION YEAR ($) ($) ($)(5) ($)(6) ($)
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Gerard Guez (1) 2007 750,000 -- -- -- 750,000
Interim Chief Executive 2006 52,000 -- -- -- 52,000
Officer and Chairman
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Patrick Chow (2) 2007 173,462 -- 19,690 14,731 207,883
Chief Financial Officer
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
David Burke (3) 2007 161,000 -- 18,551 98,769 278,320
Former Chief Financial
Officer
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Corazon Reyes (4) 2007 123,231 -- -- 51,291 174,522
Former Chief Financial 2006 220,000 -- -- 23,425 243,425
Officer
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Todd Kay 2007 750,000 -- -- 50,000 800,000
Vice Chairman of the Board 2006 750,000 150,000 -- 71,154 971,154
of Directors
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Charles Ghailian 2007 540,858 83,000 524,331 -- 1,148,189
President of Tag Mex, Inc. 2006 383,968 170,000 77,207 -- 631,175
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Henry Chu 2007 335,484 -- 40,841 1,548 377,873
President of Tarrant Company 2006 335,484 -- 21,819 33,255 390,558
Limited
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
(1) Mr. Guez was appointed as Interim Chief Executive Officer on March 31,
2006.
(2) Mr. Chow was appointed as Chief Financial Officer on November 28, 2007.
(3) Mr. Burke served as Chief Financial Officer from March 28, 2007 through
November 28, 2007.
(4) Ms. Reyes resigned from the position of Chief Financial Officer and as
a member of our board of directors effective March 28, 2007.
(5) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2007 and 2006 with
respect to stock options granted in 2007 and 2006 as well as prior
fiscal years, in accordance with SFAS 123(R). For additional
information on the valuation assumptions with respect to option grants,
including the options granted in 2007, see note 14 to the consolidated
financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2007. These amounts do not reflect the actual value
that may be realized by the named executive officers which depends on
the value of our shares in the future.
(6) All other compensation for 2006 consists of the following:
Mr. Guez Ms. Reyes Mr. Kay Mr. Ghailian Mr.Chu
------------ ------------ ------------ ------------ ------------
Automobile allowance/lease . -- 4,810 71,154 -- --
Cash-out of unused vacation -- 7,615 -- -- 31,707
401(k) matching contribution -- 11,000 -- -- 1,548
All other compensation for 2007 consists of the following:
Mr. Guez Mr. Chow Mr. Burke Ms. Reyes Mr. Kay Mr. Ghailian Mr. Chu
------------ ------------ ------------ ------------ ------------ ------------ ------------
Automobile allowance/lease . -- -- -- 4,810 50,000 -- --
Cash-out of unused vacation -- 5,769 6,269 42,590 -- -- --
401(k) matching contribution -- 8,962 -- 3,891 -- -- 1,548
Severance .................. -- -- 92,500 -- -- -- --
15
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2007
The following table provides information about equity-awards granted to each
named executive officer in 2007 under the Tarrant Apparel Group 2006 Stock
Incentive Plan, which is the only plan pursuant to which awards were granted in
2007.
------------------------------- --------------- ----------------------- ------------------- ------------------
ALL OTHER OPTION GRANT DATE FAIR
AWARDS: NUMBER OF EXERCISE OR BASE VALUE OF OPTION
GRANT SECURITIES UNDERLYING PRICE OF OPTION AWARDS
NAME DATE OPTIONS (#) AWARDS ($/SH) (1) ($)(2)
------------------------------- --------------- ----------------------- ------------------- ------------------
Patrick Chow.............. 3/16/2007 75,000 1.63 80,623
------------------------------- --------------- ----------------------- ------------------- ------------------
David Burke............... 3/16/2007 30,000 1.63 31,727
------------------------------- --------------- ----------------------- ------------------- ------------------
Charles Ghailian.......... 2/20/2007 500,000 1.99 665,625
11/1/2007 2,000,000 1.13 160,130
------------------------------- --------------- ----------------------- ------------------- ------------------
(1) The exercise price of options granted in 2007 is equal to the closing
price of our common stock on the grant date, as reported on the NASDAQ
Global Market.
(2) The grant date fair value is generally the amount we would expense in its
financial statements over the award's service period, but does not
include a reduction for forfeitures.
As described above the Compensation Discussion and Analysis, in November
2007, Mr. Ghailian was granted an award to purchase 2,000,000 shares of our
common stock at $1.13, which offer had to be accepted by the employee on or
before December 15, 2007. The award was immediately vested and was granted under
the 2006 Plan. On December 14, 2007, Mr. Ghailian exercised his right to
purchase 1,500,000 of the shares subject to the award. The award was accounted
for as an option and is included in the tables above as an option award.
16
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2007
The following table provides information with respect to outstanding stock
options held by each of the named executive officers as of December 31, 2007.
--------------------------- ------------------ -------------------------------- -------------- ---------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS
-------------------------------- OPTION OPTION
(#) (#) EXERCISE EXPIRATION
NAME GRANT DATE EXERCISABLE UNEXERCISABLE PRICE ($) DATE
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Gerard Guez................ 10/13/1998 666,668 -- 13.50 10/13/2008
5/15/2002 1,000,000 -- 5.50 5/15/2012
5/28/2003 1,000,000 -- 3.65 5/28/2013
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Patrick Chow............... 3/16/2007 -- 75,000 (1) 1.63 3/16/2017
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Corazon Reyes.............. 1/03/2000 2,000 -- 9.938 1/03/2010
12/17/2001 30,000 -- 5.09 2/17/2011
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Todd Kay................... 10/13/1998 333,332 -- 13.50 10/13/2008
5/15/2002 1,000,000 -- 5.50 5/15/2012
5/28/2003 1,000,000 -- 3.65 5/28/2013
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Charles Ghailian........... 4/08/1999 36,000 -- 39.9688 4/08/2009
12/15/1999 36,000 -- 9.969 12/15/2009
12/17/2001 100,000 -- 5.09 12/17/2011
12/30/2003 25,000 -- 3.60 12/30/2013
6/19/2006 125,000 375,000 (2) 1.84 6/19/2016
2/20/2007 -- 500,000 (3) 1.99 2/20/2017
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
Henry Chu.................. 10/31/2003 100,000 -- 3.94 10/31/2013
6/19/2006 35,326 105,978 (4) 1.84 6/19/2016
--------------------------- ------------------ --------------- ---------------- -------------- ---------------
(1) Vests with respect to 25,000 shares on each of March 16, 2008, March
16, 2009 and March 16, 2010.
(2) Vests with respect to 125,000 shares on each of January 1, 2008,
January 1, 2009 and January 1, 2010.
(3) Vests with respect to 125,000 shares on each of January 1, 2008,
January 1, 2009, January 1, 2010 and January 1, 2011.
(4) Vests with respect to 35,326 on each of June 19, 2008, June 19, 2009
and June 19, 2010.
OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2007
There following table provides information with respect to stock option
exercises by our named executive officers during 2007. No stock awards vested
for any named executive officer during 2007.
-------------------------------------------------------
OPTION AWARDS
-------------------------------------------------------
NUMBER OF SHARES ACQUIRED ON VALUE REALIZED ON
NAME EXERCISE (#) EXERCISE ($)
------------------------ ------------------------------ ------------------------
Charles Ghailian........ 1,500,000 120,000
------------------------ ------------------------------ ------------------------
17
As described above, in November 2007, Mr. Ghailian was granted an award
to purchase 2,000,000 shares of our common stock at $1.13, which offer had to be
accepted by the employee on or before December 15, 2007. The award was
immediately vested and was granted under the 2006 Plan. On December 14, 2007,
Mr. Ghailian exercised his right to purchase 1,500,000 of the shares subject to
the award.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Except for our agreement with Henry Chu described below, we do no have written
employment agreements with any of our other named executive officers.
We entered into an employment agreement as of September 16, 2005 with Henry Chu,
President of our Hong Kong subsidiary Tarrant Company Limited. This employment
agreement is for a term of three years. Mr. Chu's employment agreement provides
for a monthly salary of HKD200,000 (or approximately US$25,787 per month). The
agreement provides that either party may terminate the agreement upon two months
advance written notice to the other party. As a result, if we were to
immediately terminate Mr. Chu's employment, we would be required to continue to
pay him two months' salary, or approximately (US) $51,574.
POTENTIAL TERMINATION AND CHANGE IN CONTROL BENEFITS
We do not have a formal plan for severance or separation pay for our employees,
but from time to time we include a severance provision in the employment
agreements of our executive officers that is triggered in the event of
involuntary termination without cause or in the event of a change in control.
Currently, except for Henry Chu's employment agreement, none of our named
executive officers are entitled to receive severance payments upon a termination
of employment.
Our stock option plans provide that upon a change in control of the Company, all
outstanding stock options will immediately become vested and exercisable. As of
December 31, 2007, there were no unvested stock options held by the named
executive officers that had an exercise price lower than the closing price of
our common stock on December 31, 2007 of $1.16 per share, as reported by NASDAQ.
As a result, there would have been no value of the accelerated vesting had a
change in control occurred on December 31, 2007. Currently, there are no other
benefits payable to our named executive officers upon a change in control.
DIRECTOR COMPENSATION
The general policy of the Board of Directors is that compensation for
independent directors should be a mix of cash and equity-based compensation. We
do not pay management directors for Board service in addition to their regular
employee compensation. The full Board of Directors has the primary
responsibility for reviewing and considering any revisions to director
compensation.
DIRECTOR SUMMARY COMPENSATION TABLE
The following table details the total compensation earned by our non-employee
directors in 2007.
------------------------- ------------------- ----------------- ----------------
NAME FEES EARNED OR OPTION AWARDS TOTAL
PAID IN CASH ($) ($)(6) ($)
------------------------- ------------------- ----------------- ----------------
Stephane Farouze (1)..... 50,000 1,156 51,156
------------------------- ------------------- ----------------- ----------------
Milton Koffman (2)....... 48,000 1,156 49,156
------------------------- ------------------- ----------------- ----------------
Simon Mani (3)........... 48,000 1,156 49,156
------------------------- ------------------- ----------------- ----------------
Joseph Mizrachi (4)...... 48,000 1,156 49,156
------------------------- ------------------- ----------------- ----------------
Mitchell Simbal (5)...... 50,000 1,156 51,156
------------------------- ------------------- ----------------- ----------------
Total: $244,000 5,780 249,780
------------------------- ------------------- ----------------- ----------------
(1) As of December 31, 2007, Mr. Farouze held options to purchase a total of
24,000 shares.
(2) As of December 31, 2007, Mr. Koffman held options to purchase a total of
28,000 shares.
18
(3) As of December 31, 2007, Mr. Mani held options to purchase a total of
24,000 shares.
(4) As of December 31, 2007, Mr. Mizrachi held options to purchase a total of
32,000 shares.
(5) As of December 31, 2007, Mr. Simbal held options to purchase a total of
28,000 shares.
(6) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2007 with respect to
stock options granted in 2007 as well as prior fiscal years, in
accordance with SFAS 123(R). For additional information on the valuation
assumptions with respect to option grants, including the options granted
in 2007, see note 14 to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2007. These
amounts do not reflect the actual value that may be realized by the named
executive officers which depends on the value of our shares in the
future.
We pay to each non-employee director a monthly cash retainer of $4,000 for
service as a director. We also reimburse non-employee directors for all expenses
incurred in their capacity as a member of the Board. In addition, the Chairman
of each Board committee receives $2,000 per year for such service.
Our current practice is to grant each non-employee director an initial option to
purchase 20,000 shares of our common stock upon joining the Board of Directors,
and, thereafter, to grant each non-employee an option to purchase 4,000 shares
of common stock on the date of each annual meeting at which such person is
re-elected to serve as a director. These options have an exercise price equal to
the fair market value of such shares on the date of grant, become exercisable so
long as the recipient continues to serve as a director in four equal annual
installments commencing on the first anniversary of the grant thereof, and
expire on the tenth anniversary of the date of grant.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
------------------------------------------------------------------------
REVIEW AND APPROVAL OF RELATED PERSON TRANSACTIONS
We have adopted, by resolution of our Board of Directors, a policy that any
transactions between us and any of our affiliates or related parties, including
our executive officers, directors, shareholders who own 5% or more of our common
stock, the family members of those individuals and any of their affiliates, must
(1) be approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors and (2) be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
In early 2008, we learned that two entities from which we have purchased
finished goods, Star Source, LLC and AJG Inc. dba Astrologie, are beneficially
owned by an adult son of Charles Ghailian, one of our named executive officers.
The policies described above for review and approval of related party
transactions were not followed with respect to the transactions with these
entities because the relationship with Mr. Ghailian was not previously known to
us.
REPORTABLE RELATED PERSON TRANSACTIONS
Other than the employment arrangements described elsewhere in this Proxy
Statement and the transactions described below, since January 1, 2007, there has
not been, nor is there currently proposed, any transaction or series of similar
transactions to which we were or will be a party:
o in which the amount involved exceeds $120,000; and
o in which any director, executive officer, shareholder who
beneficially owns 5% or more of our common stock or any member
of their immediate family had or will have a direct or
indirect material interest.
We lease our executive offices and warehouse in Los Angeles, California from GET
and office space and warehouse in Hong Kong from Lynx International Limited. GET
and Lynx International Limited are each owned by Gerard Guez, our Chairman and
Interim Chief Executive Officer, and Todd Kay, our Vice Chairman. We believe, at
the time the leases were entered into, the rents on these properties were
comparable to then prevailing market rents. Our lease for the Los Angeles
offices and warehouse has a term of five years expiring in 2011, with an option
to renew for an additional five year term. Our lease for the office space and
warehouse in Hong Kong has expired and we are currently renting on a month to
month basis. We paid $1.1 million for the year ended December 31, 2007 in rent
for office and warehouse facilities at these locations. On May 1, 2006, we
sublet a portion of our executive office in Los Angeles, California and our
sales office in New York to Seven Licensing Company, LLC ("Seven Licensing") for
19
a monthly payment of $25,000 on a month to month basis. Seven Licensing is
beneficially owned by Gerard Guez. We received $300,000 in rental income from
this sublease for the year ended December 31, 2007.
From time to time in the past, we had advanced funds to Mr. Guez. These were net
advances to Mr. Guez or payments paid on his behalf before the enactment of the
Sarbanes-Oxley Act in 2002. The promissory note documenting these advances
contains a provision that the entire amount together with accrued interest is
immediately due and payable upon our written demand. The greatest outstanding
balance of such advances to Mr. Guez during 2007 was approximately $2,151,000.
At December 31, 2007, the entire balance due from Mr. Guez totaling $1,900,000
was reflected as a reduction of shareholders' equity. All amounts due from Mr.
Guez bore interest at the rate of 7.75% during the period. Total interest paid
by Mr. Guez was $158,000 for the year ended December 31, 2007. Mr. Guez paid
expenses on our behalf of approximately $365,000 for the year ended December 31,
2007, which amounts were applied to reduce accrued interest and principal on Mr.
Guez's loan. These amounts included fuel and related expenses incurred by 477
Aviation, LLC, a company owned by Mr. Guez, when our executives used this
company's aircraft for business purposes. Since the enactment of the
Sarbanes-Oxley Act in 2002, no further personal loans (or amendments to existing
loans) have been or will be made to our officers or directors.
We purchased $499,000 of finished goods, fabric and service from Azteca
Production International, Inc. ("Azteca") and its affiliates for the year ended
December 31, 2007. Azteca is owned by the brothers of Gerard Guez. Based on the
repayment history of Azteca and litigation which Azteca is currently subject to,
we estimated that our receivable of $3.4 million will take approximately three
years for collection in full. We therefore made a $1.0 million reserve and then
fair-valued the balance of this asset using our weighted average cost of capital
as the discount rate and a term of three years as the discount period. Net
amounts due from Azteca as of December 31, 2007 $1.5 million.
On September 1, 2006, our subsidiary in Hong Kong, Tarrant Company Limited,
entered into an agreement with Seven Licensing to be its buying agent to source
and purchase apparel merchandise. Seven Licensing is beneficially owned by
Gerard Guez. Total sales to Seven Licensing for the year ended December 31, 2007
were $19.4 million. Net amounts due from Seven Licensing as of December 31, 2007
were $6.8 million.
We purchased $10.4 million and $8.7 million of finished goods from Star Source,
LLC and AJG Inc. dba Astrologie for the years ended December 31, 2007 and 2006,
respectively. Star Source, LLC and AJG Inc. dba Astrologie are beneficially
owned by an adult son of Charles Ghailian, one of our named executive officers.
As of December 31, 2007, we had outstanding advances of $327,000 to Star Source,
LLC for fabric purchase.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth as of April 15, 2008, unless otherwise indicated,
certain information relating to the ownership of our common stock by (i) each of
our directors, (ii) each of our named executive officers, (iii) all of our
current named executive officers and directors as a group, and (iv) each other
shareholder who, to our knowledge, beneficially owns 5% or more of our common
stock. Except as listed below, there are no other persons known to us to the
beneficial owner of more than five percent of the outstanding shares of our
common stock. Except as may be indicated in the footnotes to the table and
subject to applicable community property laws, each such person has the sole
voting and investment power with respect to the shares owned. The address of
each person listed is in care of the Company, 3151 East Washington Blvd., Los
Angeles, CA 90023, unless otherwise set forth below such person's name.
NUMBER OF SHARES OF
COMMON STOCK PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED (1) (1)
DIRECTORS AND EXECUTIVE OFFICERS:
--------------------------------
Gerard Guez................................... 12,783,084 (2) 36.8%
Todd Kay...................................... 4,895,999 (3) 14.2%
Charles Ghailian.............................. 2,072,000 (4) 6.3%
Henry Chu .................................... 135,236 (5) *
Patrick Chow.................................. 25,000 (6) *
Stephane Farouze.............................. 101,000 (7) *
Milton Koffman................................ 35,000 (8) *
Joseph Mizrachi............................... 29,000 (9) *
Mitchell Simbal............................... 25,000 (10) *
Simon Mani.................................... 36,000 (11) *
DIRECTORS AND OFFICERS AS A GROUP (10 PERSONS) 20,137,409 (12) 53.1%
OTHER 5% BENEFICIAL OWNERS:
--------------------------
Guggenheim Capital, LLC....................... 3,500,000 (13) 10.9%
227 West Monroe Street, Chicago, IL 60606
----------
* Less than one percent.
(1) Under Rule 13d-3, certain shares may be deemed to be beneficially owned
by more than one person (if, for example, persons share the power to vote
or the power to dispose of the shares). In addition, shares are deemed to
be beneficially owned by a person if the person has the right to acquire
the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided. In computing the
percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person
(and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in
this table does not necessarily reflect the person's actual ownership or
voting power with respect to the number of shares of common stock
actually outstanding at April 15, 2008. Percentage ownership is based
upon 32,043,763 shares of common stock issued and outstanding as of April
15, 2008.
(2) Includes 2,666,668 shares of common stock issuable upon exercise of stock
options which are or will become exercisable on or prior to June 14,
2008. Mr. Guez has pledged an aggregate of 3,691,565 of such shares to
financial institutions to secure the repayment of loans to Mr. Guez or
corporations controlled by Mr. Guez.
(3) Includes 2,333,332 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(4) Includes 572,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(5) Includes 135,326 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(6) Includes of 25,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(7) Includes 21,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
21
(8) Includes 25,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(9) Includes 29,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(10) Includes 25,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(11) Includes 21,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(12) Includes 5,853,326 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to June 14,
2008.
(13) Information taken from Schedule 13D filed with the SEC on June 27, 2006.
Consists of shares of common stock issuable upon exercise of currently
exercisable warrants. Guggenheim Capital, LLC exercises power over
1,892,857 shares through Guggenheim Investment Management, LLC and power
over 1,607,143 shares through Midland Advisors Company, both of which are
subsidiaries of Guggenheim Capital, LLC. Of these shares, Orpheus
Holdings, LLC is the owner of warrants to purchase 1,892,587 shares.
Guggenheim Investment Management, LLC is the manager of Orpheus Holdings,
LLC and may be deemed to beneficially own such shares. Each of these
persons disclaims membership in a group, as defined in Section 13(d)(3)
of the Securities Exchange Act.
The information as to shares beneficially owned has been individually furnished
by the respective directors, named executive officers, and our other
shareholders, or taken from documents filed with the SEC.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our executive
officers, directors, and persons who own more than ten percent of a registered
class of our equity securities to file reports of ownership and changes in
ownership with the SEC. Executive officers, directors and greater-than-ten
percent shareholders are required by SEC regulations to furnish us with copies
of all Section 16(a) forms they file. Based solely on our review of the copies
of the forms received by us and written representations from certain reporting
persons that they have complied with the relevant filing requirements, we
believe that, during the year ended December 31, 2007, all of our executive
officers, directors and greater-than-ten percent shareholders complied with all
Section 16(a) filing requirements.
SHAREHOLDER PROPOSALS
---------------------
Any shareholder who intends to present a proposal at the 2009 Annual Meeting of
Shareholders for inclusion in our Proxy Statement and Proxy form relating to
such Annual Meeting must submit such proposal to us at our principal executive
offices by January 2, 2009. In addition, in the event a shareholder proposal is
not received by us by March 18, 2009, the Proxy to be solicited by the Board of
Directors for the 2009 Annual Meeting will confer discretionary authority on the
holders of the Proxy to vote the shares if the proposal is presented at the 2009
Annual Meeting without any discussion of the proposal in the Proxy Statement for
such meeting.
SEC rules and regulations provide that if the date of our 2009 Annual Meeting is
advanced or delayed more than 30 days from the date of the 2008 Annual Meeting,
shareholder proposals intended to be included in the proxy materials for the
2009 Annual Meeting must be received by us within a reasonable time before we
begin to print and mail the proxy materials for the 2009 Annual Meeting. Upon
our determination that the date of the 2009 Annual Meeting will be advanced or
delayed by more than 30 days from the date of the 2008 Annual Meeting, we will
disclose such change in the earliest possible Quarterly Report on Form 10-Q.
SOLICITATION OF PROXIES
-----------------------
It is expected that the solicitation of Proxies will be by mail. The cost of
solicitation by management will be borne by us. We will reimburse brokerage
firms and other persons representing beneficial owners of shares for their
reasonable disbursements in forwarding solicitation material to such beneficial
owners. Proxies may also be solicited by certain of our directors and officers,
without additional compensation, personally or by mail, telephone, telegram or
otherwise.
22
ANNUAL REPORT ON FORM 10-K
--------------------------
OUR ANNUAL REPORT ON FORM 10-K, AS AMENDED, WHICH HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 2007, WILL BE
MADE AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, TARRANT APPAREL GROUP, 3151 EAST WASHINGTON BOULEVARD, LOS ANGELES,
CALIFORNIA 90023.
ON BEHALF OF THE BOARD OF DIRECTORS
/s/ Gerard Guez
-----------------------------------
GERARD GUEZ, CHAIRMAN OF THE BOARD
3151 East Washington Boulevard
Los Angeles, California 90023
April 23, 2008
23
TARRANT APPAREL GROUP
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a shareholder of TARRANT APPAREL GROUP, a California
corporation (the "Company"), hereby nominates, constitutes and appoints Gerard
Guez and Patrick Chow, or either one of them, as proxy of the undersigned, each
with full power of substitution, to attend, vote and act for the undersigned at
the Annual Meeting of Shareholders of the Company, to be held on May 27, 2008,
and any postponements or adjournments thereof, and in connection therewith, to
vote and represent all of the shares of the Company which the undersigned would
be entitled to vote with the same effect as if the undersigned were present, as
follows:
A VOTE FOR ALL PROPOSALS IS RECOMMENDED BY THE BOARD OF DIRECTORS:
Proposal 1. To elect the Board of Directors' nominees as directors:
Class I Director Nominees: Patrick Chow Stephane Farouze
Milton Koffman Mitchell Simbal
Class II Director Nominees: Gerard Guez Todd Kay
Simon Mani Joseph Mizrachi
|_| FOR ALL NOMINEES LISTED ABOVE (except as marked to
the contrary below)
|_| WITHHELD for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name in the space below:)
------------------------------------------------------------------
The undersigned hereby confer(s) upon the proxies and each of them
discretionary authority with respect to the election of directors
in the event that any of the above nominees is unable or unwilling
to serve.
Proposal 2. To ratify the appointment of Singer Lewak Greenbaum & Goldstein
LLP as the Company's independent registered public accounting firm
for the year ending December 31, 2008.
|_| FOR |_| AGAINST |_| ABSTAIN
The undersigned hereby revokes any other proxy to vote at the Annual Meeting,
and hereby ratifies and confirms all that said attorneys and proxies, and each
of them, may lawfully do by virtue hereof. With respect to matters not known at
the time of the solicitation hereof, said proxies are authorized to vote in
accordance with their best judgment.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH ABOVE OR,
TO THE EXTENT NO CONTRARY DIRECTION IS INDICATED, WILL BE TREATED AS A GRANT OF
AUTHORITY TO VOTE FOR ALL PROPOSALS. IF ANY OTHER BUSINESS IS PRESENTED AT THE
ANNUAL MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE PROXIES.
The undersigned acknowledges receipt of a copy of the Notice of Annual Meeting
and accompanying Proxy Statement dated April 23, 2008, relating to the Annual
Meeting.
Dated:___________________________, 2008
Signature:_____________________________
Signature:_____________________________
Signature(s) of Shareholder(s)
(See Instructions Below)
The Signature(s) hereon should correspond
exactly with the name(s) of the
Shareholder(s) appearing on the Share
Certificate. If stock is held jointly, all
joint owners should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If signer is a corporation, please sign the
full corporation name, and give title of
signing officer.
|_| Please indicate by checking this box if you anticipate
attending the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE