SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ____)
Filed by the Registrant |X|
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:
================================================================================
(4) Proposed maximum aggregate value of transaction:
================================================================================
(5) Total fee paid:
================================================================================
|_| Fee paid with preliminary materials:
================================================================================
|_| 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.:
================================================================================
(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
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TIME................................. 10:00 a.m. Pacific Daylight Time
on Wednesday, June 27, 2007.
PLACE................................ Tarrant Apparel Group
3151 East Washington Boulevard
Los Angeles, California 90023
ITEMS OF BUSINESS.................... (1) To elect three Class I
members of the Board of
Directors for two-year
terms.
(2) To ratify the appointment
of Singer Lewak Greenbaum &
Goldstein LLP as our
independent registered
public accounting firm for
the year ended December 31,
2007.
(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 May 18, 2007, 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.
May 21, 2007 /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 2007
Annual Meeting of Shareholders and at any adjournments or postponements.
You are invited to attend our Annual Meeting of Shareholders on Wednesday, June
27, 2007, 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 2006 Annual Report and this Proxy Statement and the
accompanying Proxy will be mailed to shareholders on or about May 25, 2007.
SHAREHOLDERS ENTITLED TO VOTE. Holders of our common stock at the close of
business on May 18, 2007 are entitled to receive this notice and to vote their
shares at the Annual Meeting. Common stock is the only outstanding class of
securities of the Company entitled to vote at the Annual Meeting. As of May 18,
2007, there were 30,543,763 shares of common stock outstanding.
PROXIES. Your vote is important. If your shares are registered in your name, you
are a shareholder of record. If your shares are in the name of your broker or
bank, your shares are held in street name. We encourage you to vote by Proxy so
that your shares will be represented and voted at the meeting even if you cannot
attend. All shareholders can vote by written Proxy card. Your submission of the
enclosed Proxy will not limit your right to vote at the Annual Meeting if you
later decide to attend in person. IF YOUR SHARES ARE HELD IN STREET NAME, YOU
MUST OBTAIN A PROXY, EXECUTED IN YOUR FAVOR, FROM THE HOLDER OF RECORD IN ORDER
TO BE ABLE TO VOTE AT THE meeting. If you are a shareholder of record, you may
revoke your Proxy at any time before the meeting either by filing with 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 three candidates receiving the highest
number of votes at the Annual Meeting will be elected. If any nominee is unable
or unwilling to serve as a director at the time of the Annual Meeting, the
Proxies will be voted for such other nominee(s) as shall be designated by the
current Board of Directors to fill any vacancy. We have no reason to believe
that any nominee will be unable or unwilling to serve if elected as a director.
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, 2007 will
require the
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affirmative vote of a majority of the shares of common stock present or
represented and entitled to vote at the Annual Meeting.
OTHER MATTERS. At the date this Proxy Statement went to press, we do not know of
any other matter to be raised at the Annual Meeting.
In the event a shareholder proposal was not submitted to us prior to March 18,
2007, 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 three Class I members of the Board of Directors. Our
Articles of Incorporation provide that the Board of Directors is divided into
two classes which are elected for staggered two-year terms. One of the two
classes is elected each year to succeed the directors whose terms are expiring.
Our Bylaws provide that the number of directors 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 are currently two vacancies.
The Class I directors whose terms expire at the 2007 Annual Meeting are Stephane
Farouze, Milton Koffman and Mitchell Simbal. The Board of Directors, upon
recommendation of the independent directors, has nominated Stephane Farouze,
Milton Koffman and Mitchell Simbal to serve as Class I directors for terms
expiring in 2009. The Class II directors are serving terms that expire in 2008.
There is currently one vacancy among the Class I directors and one vacancy among
the Class II directors, and the Board of Directors has not yet identified
suitable candidates for these vacancies.
Unless otherwise instructed, the Proxy holders will vote the Proxies received by
them for the nominees named below. If any nominee is unwilling to serve as a
director at the time of the Annual Meeting, the Proxies will be voted for such
other nominee(s) as shall be designated by the then current Board of Directors
to fill any vacancy. We have no reason to believe that any nominee will be
unable or unwilling to serve if elected as a director.
The Board of Directors proposes the election of the following nominees as Class
I directors:
Stephane Farouze
Milton Koffman
Mitchell Simbal
If elected, the foregoing three nominees are expected to serve until the 2009
Annual Meeting of Shareholders. The three nominees for election as Class I
directors at the Annual Meeting who receive the highest number of affirmative
votes will be elected.
The principal occupation and certain other information about the nominees, other
directors whose terms of office continue after the Annual Meeting and certain
executive officers are set forth on the following pages.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE.
CLASS I DIRECTORS: TERMS EXPIRING IN 2007
STEPHANE FAROUZE Stephane Farouze has served as a director
since May 2003. Mr. Farouze is currently a
Managing Director of Paradigm Global
Advisors. Previously, from March 2000 to
November 2000, Mr. Farouze was employed as
the Global Head of Sales and Restructuring
of Societe General Asset Management. From
March 1998 to February 2000, Mr. Farouze was
Head of Foreign Exchanges for the Italian
Market for BNP. Mr. Farouze received a
Bachelor of Science in Applied Arts and
Sciences and a Business Administration
(Finance) degree from San Diego State
University in 1992.
DIRECTOR SINCE: 2003 AGE: 38
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
3
MILTON KOFFMAN Milton Koffman was elected as a director in
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: 83
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 Caesars Entertainment, which
includes Caesars Palace, Paris Las Vegas,
Bally's and Flamingo Hilton. In this
position, Mr. Simbal is responsible for a
$100 million retail division. Mr. Simbal has
a B.S. in accounting from the University of
Hartford.
DIRECTOR SINCE: 2001 AGE: 53
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
CLASS II DIRECTORS: TERMS EXPIRING IN 2008
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: 51
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: 50
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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: 61
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
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: 55
MEMBER: AUDIT COMMITTEE, COMPENSATION
COMMITTEE
OTHER EXECUTIVE OFFICERS
DAVID N. BURKE David Burke has served as our Chief
Financial Officer since March 28, 2007, and
served as our Vice President of Finance from
May 2006 to March 2007. Prior to joining us,
Mr. Burke was a Vice President at Citibank
from 2004 to May 2006, where he focused on
corporate banking for middle market
companies in Southern California. From 2001
to 2003, he was a Vice President with J.P.
Morgan Chase & Co.. Mr. Burke has also
previously served as Principal, Finance and
Development for Program Planning
Professionals, Inc.; Senior Vice President
of The Fuji Bank, Ltd.; and Vice President
with Bankers Trust Company. Mr. Burke earned
a bachelor's degree in English from
Princeton University and an MBA in Finance
and Accounting from the Columbia University
School of Business.
AGE: 57
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: 69
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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: 54
FURTHER INFORMATION CONCERNING THE BOARD OF DIRECTORS
MEETINGS, COMMITTEES AND INDEPENDENCE. The Board of Directors held thirteen
meetings during fiscal 2006 and took action by written consent without a meeting
three 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.
AUDIT COMMITTEE. The Audit Committee currently consists of Messrs. Farouze,
Koffman, Mizrachi, Mani and Simbal, all of whom are considered "independent"
under Rule 4200(a)(15)of the 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 (i) to review the scope of the audit and all non-audit services to
be performed by our independent auditors and the fees incurred by us in
connection therewith, (ii) to review the results of such audit, including the
independent accountants' opinion and letter of comment to management and
management's response thereto, (iii) to review with our independent accountants
our internal accounting principles, policies and practices and financial
reporting, (iv) to engage our independent auditors and (v) to review our
quarterly and annual financial statements prior to public issuance. The role and
responsibilities of the Audit Committee are more fully set forth in a written
Charter adopted by the Board of Directors and attached to this Proxy Statement
as Appendix A. The Audit Committee held seven meetings during fiscal 2006.
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 held five
meetings during fiscal 2006 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.
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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 Stephane Farouze, Milton Koffman and Mitchell Simbal for re-election as Class
I directors to the Board of Directors, subject to shareholder approval, for a
two-year term ending on the date of the 2009 Annual Meeting.
All directors attended 75% or more of all the meetings of the Board of Directors
and those committees on which he or she served in fiscal 2006.
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 2006. None of our current
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.
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ITEM 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
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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, 2007. SLGG audited our consolidated financial statements for the fiscal
years ended December 31, 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, 2007. We anticipate that a representative of SLGG will attend the
Annual Meeting for the purpose of responding to appropriate questions. At the
Annual Meeting, a representative of SLGG will be afforded an opportunity to make
a statement if he or she so desires.
While there is no legal requirement that this proposal be submitted to
shareholders, it will be submitted at the Annual Meeting nonetheless, as the
Board of Directors believes that the selection of auditors to audit our
consolidated financial statements is of sufficient importance to seek
shareholder approval. If the shareholders do not ratify this appointment, other
firms of certified public accountants will be considered by the Board of
Directors upon recommendation of the Audit Committee.
Grant Thornton LLP ("Grant Thornton") served as our principal independent public
accounting firm for the years ended December 31, 2003 and 2004. Grant Thornton
was dismissed on November 17, 2005. Grant Thornton's report on the financial
statements for the fiscal years ended December 31, 2003 and 2004 did not contain
an adverse opinion or a disclaimer of opinion, nor was the report qualified or
modified as to uncertainty, audit scope, or accounting principles. The decision
to change accountants was recommended and approved by the Audit Committee.
During the fiscal years ended December 31, 2003 and 2004, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreement, if not resolved to the satisfaction of Grant Thornton would
have caused it to make reference to the subject matter of the disagreement in
connection with its report.
Other than the following there were no "reportable events," as defined in Item
304(a)(1)(iv) of Regulation S-K of the Securities Exchange Act of 1934, as
amended. As previously disclosed in our Form 10-K/A for the year ended December
31, 2004, as filed with the Securities and Exchange Commission on May 31, 2005,
we restated our audited financial statements following our review of the
accounting treatment of our October 2003 private placement of convertible
preferred stock. After our review, management and the Audit Committee of the
Board of Directors determined to revise our accounting treatment to reflect the
beneficial conversion feature of the convertible preferred stock and to restate
our financial statements for the fiscal years ended December 31, 2003 and 2004.
In light of the restatement, management and Grant Thornton, our independent
accountants, concluded that a material weakness existed in our internal control
over financial reporting. Subsequent to December 31, 2004, we remedied this
material weakness by changing our policies and procedures for accounting for
instruments with convertible features. Specifically, our Chief Financial
Officer, who was hired in the third quarter of 2004, will review and approve the
appropriate accounting for convertible instruments and determine whether any
embedded beneficial conversion feature is required to be recognized and measured
separately.
AUDIT FEES
Singer Lewak Greenbaum & Goldstein billed us an aggregate of approximately
$391,000 in fees for audit services associated with the audit of our annual
financial statements for the fiscal year ended December 31, 2006 and the review
of our financial statements included in our quarterly reports on Form 10-Q for
2006. Singer Lewak Greenbaum & Goldstein billed us an aggregate of approximately
$265,000 in fees for audit services associated with the audit of our annual
financial statements for the fiscal year ended December 31, 2005. Grant Thornton
LLP (our prior principal accountants) billed us an aggregate of approximately
$93,000 in fees for the review of our financial statements included in our
quarterly reports on Form 10-Q for 2005.
AUDIT-RELATED FEES
Singer Lewak Greenbaum & Goldstein billed us $0 in fees for audit-related
services for the years ended December 31, 2006 and 2005. Audit-related services
principally include assurance and related services that are reasonably related
to the performance of the audit or review of our financial statements and are
not reported under "Audit Fees" above.
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TAX FEES
Singer Lewak Greenbaum & Goldstein billed us $0 for tax services during the
years ended December 31, 2006 and 2005, which would include services for tax
compliance, tax advice and tax planning.
ALL OTHER FEES
Singer Lewak Greenbaum & Goldstein billed us $99,000 and $0 in fees for the
years ended December 31, 2006 and 2005, respectively, other all services
provided during such periods and not otherwise described above. For 2006, these
fees 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 ended December 31, 2007 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.
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 2006, the Audit Committee:
- Reviewed and discussed the audited financial statements for the year ended
December 31, 2006 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, 2006 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.
9
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 2006 were as follows:
o Gerard Guez, Chairman of the Board and (since March 31, 2006)
Interim Chief Executive Officer;
o Barry Aved, former Chief Executive Officer (resigned as CEO as
of March 31, 2006);
o Corazon Reyes, former Chief Financial Officer (resigned as CFO
as of March 28, 2007);
o Todd Kay, Vice Chairman of the Board;
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, 2006, the principal components of compensation
for the named executive officers were:
o annual base salary;
11
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 to Mr. Guez's compensation have been made to reflect the interim
added responsibility. 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.
In 2006, the Compensation Committee approved incentive bonuses payable to each
of Gerard Guez and Todd Kay based upon our achievement of specified pre-tax
income thresholds for the year. Mr. Kay was awarded a cash bonus of $150,000 for
2006, but Mr. Guez was not awarded a bonus for 2006 as the target for his bonus
was not achieved. In 2006, Barry Aved received a discretionary cash bonus of
$100,000, which was awarded to Mr. Aved based primarily on his performance as
CEO prior to his resignation in March 2006. In addition, Charles Ghailian
received a cash bonus in 2006 of $170,000.
STOCK OPTIONS
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 2006, no named executive officers received stock option awards other than
Charles Ghailian and Henry Chu.
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.
12
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 2006, 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 2006, 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 2006, the amount
of expenses reimbursed was approximately $240,000.
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
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 2006, 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 the 2006
whose compensation exceeded $100,000 (referred to as "named executive
officers"), information concerning all compensation paid for services to us in
all capacities for 2006.
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
OPTION ALL OTHER
NAME AND SALARY BONUS AWARDS COMPENSATION TOTAL
PRINCIPAL POSITION YEAR ($) ($) ($)(4) ($)(5) ($)
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Gerard Guez (1) 2006 52,000 -- -- -- 52,000
Interim Chief Executive
Officer and Chairman
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Barry Aved (2) 2006 407,692 100,000 -- -- 507,692
Former Chief Executive
Officer
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Corazon Reyes (3) 2006 220,000 -- -- 23,425 243,425
Chief Financial Officer
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Todd Kay 2006 750,000 150,000 -- 71,154 971,154
Vice Chairman of the Board
of Directors
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Charles Ghailian 2006 383,968 170,000 77,207 -- 631,175
President of Tag Mex, Inc.
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
Henry Chu 2006 335,484 -- 21,819 33,255 390,558
President of Tarrant Company
Limited
--------------------------------- ---------- ------------ ------------ ------------ ---------------- ------------------
(1) Mr. Guez was appointed as Interim Chief Executive Officer on March 31,
2006.
(2) Mr. Aved resigned as Chief Executive Officer and President and as a
member of our board of directors, effective March 31, 2006.
(3) Ms. Reyes resigned from the position of Chief Financial Officer and as
a member of our board of directors effective March 28, 2007.
(4) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2006 with respect to
stock options granted in 2006 as well as prior fiscal years, in
accordance with SFAS 123R. For additional information on the valuation
assumptions with respect to option grants, including the options
granted in 2006, see note 14 to the consolidated financial statements
in our Annual Report on Form 10-K for the year ended December 31, 2006.
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.
(5) All other compensation for 2006 consists of the following:
---------- ------------ ----------- ---------- -------------- -----------
Mr. Guez Mr. Aved Ms. Reyes Mr. Kay Mr. Ghailian Mr. Chu
---------------------------- ---------- ------------ ----------- ---------- -------------- -----------
Automobile allowance/lease - - 7,615 71,154 - -
---------------------------- ---------- ------------ ----------- ---------- -------------- -----------
Cash-out of unused vacation - - 4,810 - - 31,707
---------------------------- ---------- ------------ ----------- ---------- -------------- -----------
401(k) matching contribution - - 11,000 - - 1,548
---------------------------- ---------- ------------ ----------- ---------- -------------- -----------
15
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2006
The following table provides information about equity-awards granted to each
named executive officer in 2006 under the Tarrant Apparel Group 2006 Stock
Incentive Plan, which is the only plan pursuant to which awards were granted in
2006.
--------------------- --------------- ----------------------- ------------------- ------------------
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)
--------------------- --------------- ----------------------- ------------------- ------------------
Charles Ghailian 6/19/2006 500,000 1.84 625,000
--------------------- --------------- ----------------------- ------------------- ------------------
Henry Chu 6/19/2006 141,304 1.84 176,630
--------------------- --------------- ----------------------- ------------------- ------------------
(1) The exercise price of options granted in 2006 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.
16
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2006
The following table provides information with respect to outstanding stock
options held by each of the named executive officers as of December 31, 2006.
---------------------- ------------- -------------------------------- -------------- ---------------
NUMBER OF SECURITIES OPTION OPTION
UNDERLYING UNEXERCISED EXERCISE EXPIRATION
NAME GRANT DATE OPTIONS (1) PRICE ($) DATE
---------------------- ------------- -------------------------------- -------------- ---------------
(#) (#)
EXERCISABLE UNEXERCISABLE
---------------------- ------------- --------------- ---------------- -------------- ---------------
Gerard Guez 10/13/1998 666,668 -- 13.50 10/13/2008
05/15/2002 1,000,000 -- 5.50 05/15/2012
05/28/2003 1,000,000 -- 3.65 05/28/2013
---------------------- ------------- --------------- ---------------- -------------- ---------------
Barry Aved 05/01/1998 3,000 -- 15.50 05/01/2008
05/03/1999 2,000 -- 45.50 05/03/2009
05/08/2000 4,000 -- 8.25 05/08/2010
05/08/2001 4,000 -- 5.55 05/08/2011
08/12/2003 4,000 -- 2.84 08/12/2013
09/23/2003 100,000 -- 3.65 09/23/2013
12/04/2003 400,000 -- 3.939 12/04/2013
01/02/2004 30,000 -- 3.68 01/02/2014
---------------------- ------------- --------------- ---------------- -------------- ---------------
Corazon Reyes 01/03/2000 2,000 -- 9.938 01/03/2010
12/17/2001 30,000 -- 5.09 02/17/2011
---------------------- ------------- --------------- ---------------- -------------- ---------------
Todd Kay 10/13/1998 333,332 -- 13.50 10/13/2008
05/15/2002 1,000,000 -- 5.50 05/15/2012
05/28/2003 1,000,000 -- 3.65 05/28/2013
---------------------- ------------- --------------- ---------------- -------------- ---------------
Charles Ghailian 04/08/1999 36,000 -- 39.9688 04/08/2009
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
06/19/2006 -- 500,000 (1) 1.84 06/19/2016
---------------------- ------------- --------------- ---------------- -------------- ---------------
Henry Chu 10/31/2003 100,000 -- 3.94 10/31/2013
06/19/2006 -- 141,304 (2) 1.84 06/19/2016
---------------------- ------------- --------------- ---------------- -------------- ---------------
(1) Vests in 4 equal installments on each of January 1, 2007, January 1,
2008, January 1, 2009 and January 1, 2010.
(2) Vests in 4 equal installments on each of June 19, 2007, June 19, 2008,
June 19, 2009 and June 19, 2010.
OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2006
There were no stock option exercises by any of the named executive officers
during 2006. No stock awards vested for any named executive officer during 2006.
17
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Except for our agreement 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 provided a two
months advance written notice is provided 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, 2006, there were no unvested stock options held the named executive
officers that had an exercise price lower than the closing price of our common
stock on December 29, 2006 of $1.47, as reported by NASDAQ. As a result, there
would have been no value of the accelerated vesting had a change in control
occurred on December 31, 2006. Currently, there are no other benefits payable to
our named executive officers upon a change in control.
DIRECTOR COMPENSATION
The general policy of the Board of Directors is that compensation for
independent directors should be a mix of cash and equity-based compensation. We
do not pay management directors for Board service in addition to their regular
employee compensation. The full Board of Directors has the primary
responsibility for reviewing and considering any revisions to director
compensation.
DIRECTOR SUMMARY COMPENSATION TABLE
The following table details the total compensation earned by our non-employee
directors in 2006.
----------------------- ------------------- ------------------- ----------------
FEES EARNED OR OPTION AWARDS TOTAL
NAME PAID IN CASH ($) ($)(6) ($)
----------------------- ------------------- ------------------- ----------------
Stephane Farouze (1) $50,000 $618 $50,618
----------------------- ------------------- ------------------- ----------------
Milton Koffman (2) $48,000 $618 $48,618
----------------------- ------------------- ------------------- ----------------
Simon Mani (3) $48,000 $618 $48,618
----------------------- ------------------- ------------------- ----------------
Joseph Mizrachi (4) $48,000 $618 $48,618
----------------------- ------------------- ------------------- ----------------
Mitchell Simbal (5) $50,000 $618 $50,618
----------------------- ------------------- ------------------- ----------------
Total: $244,000 $3,090 $247,090
----------------------- ------------------- ------------------- ----------------
(1) As of December 31, 2006, Mr. Farouze held options to purchase a total of
24,000 shares.
(2) As of December 31, 2006, Mr. Koffman held options to purchase a total of
28,000 shares.
(3) As of December 31, 2006, Mr. Mani held options to purchase a total of
24,000 shares.
(4) As of December 31, 2006, Mr. Mizrachi held options to purchase a total of
32,000 shares.
(5) As of December 31, 2006, Mr. Simbal held options to purchase a total of
28,000 shares.
18
(6) The amounts in this column represent the dollar amounts recognized for
financial statement reporting purposes in fiscal 2006 with respect to
stock options granted in 2006 as well as prior fiscal years, in
accordance with SFAS 123R. For additional information on the valuation
assumptions with respect to option grants, including the options granted
in 2006, see note 14 to the consolidated financial statements in our
Annual Report on Form 10-K for the year ended December 31, 2006. 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
reelected 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.
REPORTABLE RELATED PERSON TRANSACTIONS
Other than the employment arrangements described elsewhere in this Proxy
Statement and the transactions described below, since January 1, 2006, 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 principal offices and warehouse located in Los Angeles, California
from GET and office space in Hong Kong from Lynx International Limited. GET and
Lynx International Limited are each owned by Gerard Guez, our Chairman 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. During the first seven months of
2006, our Los Angeles offices and warehouse were leased on a month to month
basis. On August 1, 2006, we entered into a lease agreement with GET for the Los
Angeles offices and warehouse, which lease has a term of five years with an
option to renew for an additional five year term. On February 1, 2007, we
entered into a one year lease agreement with Lynx International Limited for our
office space and warehouse in Hong Kong. We paid $1,076,000 in 2006 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 a monthly payment of $25,000 on a month to month basis.
Seven Licensing is beneficially owned by Gerard Guez. We received $200,000 in
rental income from this sublease in the year ended December 31, 2006.
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. Total sales to Seven Licensing during the year
ended December 31, 2006 were $4.4 million.
19
In August 2004, we entered into an Agreement for Purchase of Assets with
affiliates of Mr. Kamel Nacif, a shareholder at the time of the transaction,
which agreement was amended in October 2004. Pursuant to the agreement, as
amended, on November 30, 2004, we sold to the purchasers substantially all of
our assets and real property in Mexico, including the equipment and facilities
we previously leased to Mr. Nacif's affiliates in October 2003, for an aggregate
purchase price consisting of: a) $105,400 in cash and $3,910,000 by delivery of
unsecured promissory notes bearing interest at 5.5% per annum; and b)
$40,204,000, by delivery of secured promissory notes bearing interest at 4.5%
per annum, with payments due on December 31, 2005 and every year thereafter
until December 31, 2014. The secured promissory notes are payable in partial or
total amounts anytime prior to the maturity of each note. As of September 30,
2006, the outstanding balance of the notes and interest receivables were $41.1
million prior to the reserve. Historically, we have placed orders for purchases
of fabric from the purchasers pursuant to the purchase commitment agreement we
entered into at the time of the sale of the Mexico assets, and we have satisfied
our payment obligations for the fabric by offsetting the amounts payable against
the amounts due to us under the notes. However, during 2006, the purchasers
ceased providing fabric and are not currently making payments under the notes.
We further evaluated the recoverability of the notes receivable and recorded a
loss on the notes receivable in the third quarter of 2006 in an amount equal to
the outstanding balance less the value of the underlying assets securing the
notes. The loss was estimated to be approximately $27.1 million, resulting in a
notes receivable balance at September 30, 2006 of approximately $14 million. We
believe there was no significant change subsequently on the value of the
underlying assets securing the notes; therefore, we did not have additional
reserve in the fourth quarter of 2006. We will continue to pursue payments on
the notes receivable and believe the remaining $14 million balance at December
31, 2006 is realizable.
Upon consummation of the sale of our Mexico assets, we entered into a purchase
commitment agreement with the purchasers, pursuant to which we agreed to
purchase annually over the ten-year term of the agreement, $5 million of fabric
manufactured at our former facilities acquired by the purchasers at negotiated
market prices. This agreement replaced a previously existing purchase commitment
agreement with Mr. Nacif's affiliates. We did not purchase any fabric under this
agreement in 2006. Net amount due from Mr. Kamel Nacif and his affiliates was
$116,000 as of December 31, 2006.
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 2006 was approximately $2,279,000.
At December 31, 2006, the entire balance due from Mr. Guez totaling $2.2 million
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 $171,000 for the year ended December 31, 2006. Mr. Guez paid
expenses on our behalf of approximately $299,000 for the year ended December 31,
2006, 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 officers or directors of Tarrant.
We purchased $1.1 million of fabric from Azteca Production International, Inc.
and its affiliates for the year ended December 31, 2006. Our total sales of
fabric and services to Azteca Production International in 2006 were $9,000.
Azteca Production International is owned by the brothers of Gerard Guez.
We purchased $205,000 of trim from Tag-It Pacific, Inc. for the year ended
December 31, 2006. At December 31, 2006, Gerard Guez and Todd Kay beneficially
owned 488,400 and 1,003,500 shares, respectively, of common stock of Tag-It
Pacific, collectively representing 8.1% of Tag-It Pacific's common stock.
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 15, 2007, 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
NAME AND ADDRESS BENEFICIALLY OWNED (1) PERCENT (1)
DIRECTORS AND EXECUTIVE OFFICERS:
Gerard Guez...................................... 12,783,084 (2) 38.5%
Todd Kay......................................... 4,895,999 (3) 14.9%
Barry Aved (former CEO).......................... 607,000 (4) 2.0%
Charles Ghailian................................. 322,000 (5) 1.0%
Corazon Reyes (former CFO)....................... 264,888 (6) *
Stephane Farouze................................. 101,000 (7) *
Henry Chu ....................................... 135,326 (8) *
Milton Koffman................................... 35,000 (9) *
Joseph Mizrachi.................................. 29,000 (10) *
Mitchell Simbal.................................. 25,000 (11) *
Simon Mani....................................... 21,000 (12) *
David N. Burke................................... 7,500 (13) --
DIRECTORS AND OFFICERS AS A GROUP (13 PERSONS)... 19,226,797 (14) 52.4%
OTHER 5% BENEFICIAL OWNERS:
Guggenheim Capital, LLC.......................... 3,500,000 (15) 10.3%
227 West Monroe Street, Chicago, IL 60606
GMM Capital LLC.................................. 1,583,700 (16) 5.2%
1450 Broadway, 38th Floor, New York, NY 10018
------------------------------------------------- ---------------------- -----------
* 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 May 15, 2007. Percentage ownership is based upon
30,543,763 shares of common stock issued and outstanding as of May 15,
2007.
(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 July 14,
2007. 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 July 14,
2007.
(4) Includes 547,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(5) Includes 322,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(6) Includes 32,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
21
(7) Includes 21,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(8) Consists of 135,326 shares of common stock issuable upon exercise of
stock options, which are or will become exercisable on or prior to July
14, 2007.
(9) Includes 25,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(10) Consists of 29,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(11) Consists of 25,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(12) Consists of 21,000 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(13) Consists of 7,500 shares of common stock issuable upon exercise of stock
options, which are or will become exercisable on or prior to July 14,
2007.
(14) Includes 6,164,826 shares of common stock issuable upon exercise of stock
options that are or will become exercisable on or prior to July 14, 2007.
(15) 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.
(16) Information taken from Schedule 13G filed with the SEC on February 15,
2007. GMM Trust is the sole member of GMM Capital LLC and shares voting
and investment power with respect to the shares.
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, 2006, 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 2008 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 3, 2008. In addition, in the event a shareholder proposal is
not received by us by March 18, 2008, the Proxy to be solicited by the Board of
Directors for the 2008 Annual Meeting will confer discretionary authority on the
holders of the Proxy to vote the shares if the proposal is presented at the 2008
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 2008 Annual Meeting is
advanced or delayed more than 30 days from the date of the 2007 Annual Meeting,
shareholder proposals intended to be included in the proxy materials for the
2008 Annual Meeting must be received by us within a reasonable time before we
begin to print and mail the proxy materials for the 2008 Annual Meeting. Upon
our determination that the date of the 2008 Annual Meeting will be advanced or
delayed by more than 30 days from the date of the 2007 Annual Meeting, we will
disclose such change in the earliest possible Quarterly Report on Form 10-Q.
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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.
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, 2006, 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
May 21, 2007
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APPENDIX "A"
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF TARRANT APPAREL GROUP
This Charter identifies the purpose, composition, meeting requirements,
committee responsibilities, annual evaluation procedures and investigations and
studies of the Audit Committee (the "COMMITTEE") of the Board of Directors (the
"BOARD") of Tarrant Apparel Group, a California corporation (the "COMPANY").
I. PURPOSE
The Committee has been established to: (a) assist the Board in its
oversight responsibilities regarding (1) the integrity of the Company's
financial statements, (2) the Company's compliance with legal and regulatory
requirements, (3) the independent accountant's qualifications and independence
and (4) the performance of the Company's internal audit function; (b) prepare
the report of the audit committee required by the United States Securities and
Exchange Commission (the "SEC") for inclusion in the Company's annual proxy
statement; (c) retain and terminate the Company's independent accountant; (d)
approve audit and non-audit services to be performed by the independent
accountant; and (e) perform such other functions as the Board may from time to
time assign to the Committee. In performing its duties, the Committee shall seek
to maintain an effective working relationship with the Board, the independent
accountant, the internal auditors and management of the Company.
II. COMPOSITION
The Committee shall be composed of at least three, but not more than
five, members (including a Chairperson), all of whom shall be "independent
directors," as such term is defined in the rules and regulations of the SEC and
the Nasdaq Stock Market, Inc.'s National Market System ("NASDAQ"). The members
of the Committee and the Chairperson shall be selected by the Board and serve at
the pleasure of the Board. A Committee member (including the Chairperson) may be
removed at any time, with or without cause, by the Board. The Board may
designate one or more independent directors as alternate members of the
Committee, who may replace any absent or disqualified member or members at any
meetings of the Committee. No person may be made a member of the Committee if
his or her service on the Committee would violate any restriction on service
imposed by any rule or regulation of the SEC or any securities exchange or
market on which shares of the common stock of the Company are traded. The
Chairperson shall maintain regular communication with the chief executive
officer, chief financial officer, the lead partner of the independent accountant
and the manager of the internal audit.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices and be able to read and understand
financial statements. Committee members may enhance their familiarity with
finance and accounting by participating in educational programs conducted by the
Company or an outside consultant.
Except for Board and Committee fees, a member of the Committee shall
not be permitted to accept any fees paid directly or indirectly for services as
a consultant, legal advisor or financial advisor or any other fees prohibited by
the rules of the SEC and Nasdaq. In addition, no member of the Committee may be
an "affiliated person" of the Company or any of its subsidiaries (as such term
is defined by the SEC). Members of the Committee may receive their Board and
Committee fees in cash, Company stock or options or other in-kind consideration
as determined by the Board or the Compensation Committee, as applicable, in
addition to all other benefits that other directors of the Company receive. No
director may serve on the Committee, without the approval of the Board, if such
director simultaneously serves on the audit committee of more than three public
companies.
III. MEETING REQUIREMENTS
The Committee shall meet as necessary, but at least quarterly, to
enable it to fulfill its responsibilities. The Committee shall meet at the call
of any member of the Committee, preferably in conjunction with regular Board
meetings. The Committee may meet by telephone conference call or by any other
means permitted by law or the Company's Bylaws. A majority of the members of the
Committee shall constitute a quorum. The Committee shall act on the affirmative
vote of a majority of members present at a meeting at which a quorum is present.
Without a meeting, the Committee may act by
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unanimous written consent of all members. The Committee shall determine its own
rules and procedures, including designation of a chairperson pro tempore, in the
absence of the Chairperson, and designation of a secretary. The secretary need
not be a member of the Committee and shall attend Committee meetings and prepare
minutes. The Committee shall keep written minutes of its meetings, which shall
be recorded or filed with the books and records of the Company. Any member of
the Board shall be provided with copies of such Committee minutes if requested.
The Committee may ask members of management, employees, outside
counsel, the independent accountant or others whose advice and counsel are
relevant to the issues then being considered by the Committee, to attend any
meetings and to provide such pertinent information as the Committee may request.
The Chairperson of the Committee shall be responsible for leadership of
the Committee, including preparing the agenda, presiding over Committee
meetings, making Committee assignments and reporting the Committee's actions to
the Board from time to time (but at least once each year) as requested by the
Board.
As part of its responsibility to foster free and open communication,
the Committee should meet periodically with management, the internal auditors
and the independent accountant in separate executive sessions to discuss any
matters that the Committee or any of these groups believe should be discussed
privately. In addition, the Committee or at least its Chairperson should meet
with the independent accountant and management quarterly to review the Company's
financial statements prior to their public release consistent with the
provisions set forth below in SECTION IV. The Committee may also meet from time
to time with the Company's investment bankers, investor relations professionals
and financial analysts who follow the Company.
IV. COMMITTEE RESPONSIBILITIES
In carrying out its responsibilities, the Committee's policies and
procedures should remain flexible to enable the Committee to react to changes in
circumstances and conditions so as to ensure the Company remains in compliance
with applicable legal and regulatory requirements. In addition to such other
duties as the Board may from time to time assign, the Committee shall have the
following responsibilities:
A. OVERSIGHT OF THE FINANCIAL REPORTING PROCESSES
1. In consultation with the independent accountant and
the internal auditors, review the integrity of the
organization's financial reporting processes, both
internal and external.
2. Review and approve all related-party transactions,
unless such responsibility has been reserved to the
full Board or delegated to another committee of the
Board.
3. Consider the independent accountant's judgments about
the quality and appropriateness of the Company's
accounting principles as applied in its financial
reporting. Consider alternative accounting principles
and estimates.
4. Annually review major issues regarding the Company's
auditing and accounting principles and practices and
its presentation of financial statements, including
the adequacy of internal controls and special audit
steps adopted in light of material internal control
deficiencies.
5. Discuss with management and legal counsel the status
of pending litigation, taxation matters, compliance
policies and other areas of oversight applicable to
the legal and compliance area as may be appropriate.
6. Meet at least annually with the chief financial
officer, the internal auditors and the independent
accountant in separate executive sessions.
7. Review all analyst reports and press articles about
the Company's accounting and disclosure practices and
principles.
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8. Review all analyses prepared by management and the
independent accountant of significant financial
reporting issues and judgments made in connection
with the preparation of the Company's financial
statements, including any analysis of the effect of
alternative generally accepted accounting principle
("GAAP") methods on the Company's financial
statements and a description of any transactions as
to which management obtained Statement on Auditing
Standards No. 50 letters.
9. Review with management and the independent accountant
the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the
Company's financial statements.
B. REVIEW OF DOCUMENTS AND REPORTS
1. Review and discuss with management and the
independent accountant the Company's annual audited
financial statements and quarterly financial
statements (including disclosures under the section
entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operation") and
any reports or other financial information submitted
to any governmental body, or the public, including
any certification, report, opinion or review rendered
by the independent accountant, considering, as
appropriate, whether the information contained in
these documents is consistent with the information
contained in the financial statements and whether the
independent accountant and legal counsel are
satisfied with the disclosure and content of such
documents. These discussions shall include
consideration of the quality of the Company's
accounting principles as applied in its financial
reporting, including review of audit adjustments
(whether or not recorded) and any such other inquires
as may be appropriate. Based on the review, the
Committee shall make its recommendation to the Board
as to the inclusion of the Company's audited
consolidated financial statements in the Company's
annual report on Form 10-K.
2. Review and discuss with management and the
independent accountant earnings press releases, as
well as financial information and earnings guidance
provided to analysts and rating agencies. The
Committee need not discuss in advance each earnings
release but should generally discuss the types of
information to be disclosed and the type of
presentation to be made in any earnings release or
guidance.
3. Review the regular internal reports to management
prepared by the internal auditors and management's
response thereto.
3. Review reports from management, the internal auditors
and the independent accountant on the Company's
subsidiaries and affiliates, compliance with the
Company's code(s) of conduct, applicable law and
insider and related party transactions.
4. Review with management and the independent accountant
any correspondence with regulators or government
agencies and any employee complaints or published
reports that raise material issues regarding the
Company's financial statements or accounting
policies.
5. Prepare the report of the audit committee required by
the rules of the SEC to be included in the Company's
annual proxy statement.
6. Submit the minutes of all meetings of the Committee
to, or discuss the matters discussed at each
Committee meeting with, the Board.
7. Review any restatements of financial statements that
have occurred or were recommended. Review the
restatements made by other clients of the independent
accountant.
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C. INDEPENDENT ACCOUNTANT MATTERS
1. The Committee shall be directly responsible for
interviewing and retaining the Company's independent
accountant, considering the accounting firm's
independence and effectiveness and approving the
engagement fees and other compensation to be paid to
the independent accountant.
2. On an annual basis, the Committee shall evaluate the
independent accountant's qualifications, performance
and independence. To assist in this undertaking, the
Committee shall require the independent accountant to
submit a report (which report shall be reviewed by
the Committee) describing (a) the independent
accountant's internal quality-control procedures, (b)
any material issues raised by the most recent
internal quality-control review, or peer review, of
the accounting firm or by any inquiry or
investigations by governmental or professional
authorities (within the preceding five years)
respecting one or more independent audits carried out
by the independent accountant, and any steps taken to
deal with any such issues and (c) all relationships
the independent accountant has with the Company and
relevant third parties to determine the independent
accountant's independence. In making its
determination, the Committee shall consider not only
auditing and other traditional accounting functions
performed by the independent accountant, but also
consulting, legal, information technology services
and other professional services rendered by the
independent accountant and its affiliates. The
Committee shall also consider whether the provision
of any of these non-audit services is compatible with
the independence standards under the guidelines of
the SEC and of the Independence Standards Board.
3. Approve in advance any non-audit services to be
provided by the independent accountant and adopt
policies and procedures for engaging the independent
accountant to perform non-audit services.
4. Review on an annual basis the experience and
qualifications of the senior members of the audit
team. Discuss the knowledge and experience of the
independent accountant and the senior members of the
audit team with respect to the Company's industry.
The Committee shall ensure the regular rotation of
the lead audit partner and audit review partner as
required by law and consider whether there should be
a periodic rotation of the Company's independent
accountant.
5. Review the performance of the independent accountant
and terminate the independent accountant when
circumstances warrant.
6. Establish and periodically review hiring policies for
employees or former employees of the independent
accountant.
7. Review with the independent accountant any problems
or difficulties the auditor may have encountered and
any "management" or "internal control" letter
provided by the independent accountant and the
Company's response to that letter. Such review should
include: (a) any difficulties encountered in the
course of the audit work, including any restrictions
on the scope of activities or access to required
information and any disagreements with management;
(b) any accounting adjustments that were proposed by
the independent accountant that were not agreed to by
the Company; (c) communications between the
independent accountant and its national office
regarding any issues on which it was consulted by the
audit team and matters of audit quality and
consistency; (d) any changes required in the planned
scope of the internal audit; and (e) the
responsibilities, budget and staffing of the
Company's internal audit function.
8. Communicate with the independent accountant regarding
(a) critical accounting policies and practices to be
used in preparing the audit report, (b) alternative
treatments of financial information within the
parameters of GAAP that were discussed with
management, including the ramifications of the use of
such alternative treatments and disclosures and the
treatment preferred by the independent accountant,
(c) other material written communications between the
A-4
independent accountant and management of the Company,
and (d) such other matters as the SEC and Nasdaq may
direct by rule or regulation.
9. Periodically consult with the independent accountant
out of the presence of management about internal
controls and the fullness and accuracy of the
organization's financial statements.
10. Oversee the independent accountant relationship by
discussing with the independent accountant the nature
and rigor of the audit process, receiving and
reviewing audit reports and ensuring that the
independent accountant has full access to the
Committee (and the Board) to report on any and all
appropriate matters.
11. Discuss with the independent accountant prior to the
audit the general planning and staffing of the audit.
12. Obtain a representation from the independent
accountant that Section 10A of the Securities
Exchange Act of 1934 has been followed.
D. INTERNAL AUDIT CONTROL MATTERS
1. Discuss with management policies with respect to risk
assessment and risk management. Although it is
management's duty to assess and manage the Company's
exposure to risk, the Committee should discuss
guidelines and policies to govern the process by
which risk assessment and management is handled and
review the steps management has taken to monitor and
control the Company's risk exposure.
2. Establish regular and separate systems of reporting
to the Committee by each of management, the
independent accountant and the internal auditors
regarding any significant judgments made in
management's preparation of the financial statements
and the view of each as to appropriateness of such
judgments.
3. Following completion of the annual audit, review
separately with each of management, the independent
accountant and the internal auditors any significant
difficulties encountered during the course of the
audit, including any restrictions on the scope of
work or access to required information.
4. Review with the independent accountant, the internal
auditors and management the extent to which changes
or improvements in financial or accounting practices
have been implemented. This review should be
conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided
by the Committee.
5. Advise the Board about the Company's policies and
procedures for compliance with applicable laws and
regulations and the Company's code(s) of conduct.
6. Establish procedures for receipt, retention and
treatment of complaints and concerns regarding
accounting, internal accounting controls or auditing
matters, including procedures for confidential,
anonymous submissions from employees regarding
questionable accounting or auditing matters.
7. Periodically discuss with the chief executive officer
and chief financial officer (a) significant
deficiencies in the design or operation of the
internal controls that could adversely affect the
Company's ability to record, process, summarize and
report financial data and (b) any fraud that involves
management or other employees who have a significant
role in the Company's internal controls.
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8. Ensure that no officer, director or any person acting
under their direction fraudulently influences,
coerces, manipulates or misleads the independent
accountant for purposes of rendering the Company's
financial statements materially misleading.
E. EVALUATION OF INTERNAL AUDITORS
1. Review activities, organizational structure and
qualifications of the internal auditors.
2. Review and concur in the appointment, replacement,
reassignment or dismissal of the manager of internal
auditing.
3. Consider and review with management and the manager
of internal auditing: (a) significant findings during
the year and management's responses thereto; (b) any
difficulties encountered in the course of internal
audits, including any restrictions on the scope of
the internal auditors' work or access to required
information; (c) any changes required in the planned
scope of the internal auditors' audit plan; (d) the
internal auditors' budget and staffing; and (e) the
internal auditors' compliance with The Institute of
Internal Auditors' Standards for the Professional
Practice of Internal Auditing.
While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountant.
V. ANNUAL EVALUATION PROCEDURES
The Committee shall annually assess its performance to confirm that it
is meeting its responsibilities under this Charter. In this review, the
Committee shall consider, among other things, (a) the appropriateness of the
scope and content of this Charter, (b) the appropriateness of matters presented
for information and approval, (c) the sufficiency of time for consideration of
agenda items, (d) frequency and length of meetings and (e) the quality of
written materials and presentations. The Committee may recommend to the Board
such changes to this Charter as the Committee deems appropriate.
VI. INVESTIGATIONS AND STUDIES
The Committee shall have the authority and sufficient funding to retain
special legal, accounting or other consultants (without seeking Board approval)
to advise the Committee. The Committee may conduct or authorize investigations
into or studies of matters within the Committee's scope of responsibilities as
described herein, and may retain, at the expense of the Company, independent
counsel or other consultants necessary to assist the Committee in any such
investigations or studies. The Committee shall have sole authority to negotiate
and approve the fees and retention terms of such independent counsel or other
consultants.
VII. MISCELLANEOUS
Nothing contained in this Charter is intended to expand applicable
standards of liability under statutory or regulatory requirements for the
directors of the Company or members of the Committee. The purposes and
responsibilities outlined in this Charter are meant to serve as guidelines
rather than as inflexible rules and the Committee is encouraged to adopt such
additional procedures and standards as it deems necessary from time to time to
fulfill its responsibilities. This Charter, and any amendments thereto, shall be
displayed on the Company's web site and a printed copy of such shall be made
available to any shareholder of the Company who requests it.
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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 David Burke, 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 June 27, 2007,
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' three nominees as directors:
Stephane Farouze Milton Koffman Mitchell Simbal
|_| 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 public accountants
for the year ending December 31, 2007.
|_| 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 May 21, 2007, relating to the Annual
Meeting.
Dated:___________________________, 2007
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