SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): October 16, 2003
TARRANT APPAREL GROUP
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 0-26430 95-4181026
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
3151 EAST WASHINGTON BOULEVARD
LOS ANGELES, CALIFORNIA 90023
(Address of Principal Executive Offices) (Zip Code)
(323) 780-8250
(Registrant's Telephone Number, Including Area Code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
LEASE OF FACILITIES IN MEXICO
On October 16, 2003, Tarrant Apparel Group, a California corporation
(the "REGISTRANT"), finalized agreements for the previously announced lease of
certain of the Registrant's manufacturing facilities in Mexico, including real
property and the manufacturing equipment located in the facilities, to entities
affiliated with Mr. Kamel Nacif Borge for a period of 6 years commencing as of
September 1, 2003. Pursuant to these agreements, the Company leased a
substantial portion of its twill mill in Tlaxcala, Mexico, its denim and twill
mill in Ajalpan, Mexico, and a substantial portion of the equipment located at
these facilities, for a rental fee of $11 million per year. Copies of the Lease
Agreements for the Tlaxcala and Ajalpan facilities are attached to this report
as Exhibits 2.1 and 2.2, respectively, and are incorporated herein by this
reference.
The Registrant also entered into a management services agreement
pursuant to which the affiliates of Mr. Nacif have agreed to manage the
operations of the Registrant's remaining facilities in Mexico. The term of the
management services agreement also is for a period of 6 years. In addition,
pursuant to a purchase commitment agreement, the Registrant has agreed to
purchase annually, 6 million yards of fabric manufactured at the facilities
leased and/or operated by Mr. Nacif's affiliates. A copy of the purchase
commitment agreement is attached to this report as Exhibit 99.1 and is
incorporated herein by this reference.
MATERIAL RELATIONSHIPS WITH REGISTRANT
Kamel Nacif Borge is the beneficial owner of more than 10% of the
Registrant's outstanding common stock. Jamil Textil, S.A. de C.V., an entity
controlled by Mr. Nacif, owns 1,724,000 shares of the Registrant's common stock,
representing approximately 9% of the Registrant's outstanding common stock. Rosa
Lisette Nacif Benavides, the adult daughter of Mr. Nacif, owns 3,000,000 shares
of common stock, representing approximately 16% of the Registrant's outstanding
common stock.
On December 31, 2002, the Registrant acquired the denim and twill
manufacturing plant in Tlaxcala, Mexico, including all machinery and equipment
used in the plant, and the outstanding equity securities of Inmobiliaria
Cuadros, S.A. de C.V. ("INMOBILIARIA"), which owns the buildings and real estate
on which the plant is located, from Trans Textil International, S.A. de C.V.
("TRANS TEXTIL"), Rosa Lisette Nacif Benavides, Gazi Nacif Borge, and Jorge
Miguel Echevarria Vazquez. The purchase price for the machinery and equipment
was paid by cancellation of $42 million in indebtedness owed by Trans Textil to
the Registrant's Mexican subsidiary, Tarrant Mexico S. de R.L. de C.V. ("TARRANT
MEXICO"). The purchase price for the equity securities of Inmobiliaria consisted
of a nominal cash payment to the Inmobiliaria shareholders of $500, and the
subsequent repayment by the Registrant and its affiliates of approximately $34.7
million in indebtedness of Inmobiliaria to Mr. Nacif, an affiliate of Trans
Textil and Inmobiliaria, his daughter Rosa Lisette Nacif Benavides, and certain
of their affiliates, which payment was made by: (i) delivery to Rosa Lisette
Nacif Benavides of one hundred thousand shares of a newly created, non-voting
Series A Preferred Stock of the Registrant, which shares were converted into
three million shares of the Registrant's common stock; (ii) delivery to Rosa
Lisette Nacif Benavides of an ownership interest representing twenty-five
percent of the voting power of and profit participation in Tarrant Mexico; and
(iii) cancellation of approximately $14.9 million of indebtedness of Mr. Nacif
and his affiliates.
Trans Textil, an entity controlled by Mr. Nacif and his family members,
was initially commissioned by the Registrant to construct and develop the
Tlaxcala plant in December 1998. Subsequent to completion, Trans Textil
purchased and/or leased the plant's manufacturing equipment
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from the Registrant and entered into a production agreement that gave the
Registrant the first right to all production capacity of the plant. This
production agreement included the option for the Registrant to purchase the
facility and discontinue the production agreement with Trans Textil through
September 30, 2002. The Registrant exercised the option and acquired the plant
as described above.
From time to time, the Registrant advanced funds to Mr. Nacif and his
affiliates, and Mr. Nacif and such affiliates advanced funds to the Registrant.
Immediately prior to the twill mill acquisition, Mr. Nacif and his affiliates
owed the Registrant approximately $7.5 million, which indebtedness was cancelled
as part of the repayment by Inmobiliaria of indebtedness due Mr. Nacif and his
affiliates. The Registrant no longer advances funds to Mr. Nacif.
ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE.
PRIVATE PLACEMENT FINANCING TRANSACTION
On October 17, 2003 and October 24, 2003, the Registrant closed the
sales of an aggregate of 881,732 shares of non-voting Series A Convertible
Preferred Stock (the "PREFERRED SHARES"), at a price of $38.00 per share, to
institutional investors and individual accredited investors. After payment of
placement agent fees and other offering expenses, the Registrant received
proceeds of approximately $31.1 million. The Registrant intends to use the
proceeds of the financing for repayment of debt and general corporate purposes.
The Registrant entered into a registration rights agreement with the
purchasers of the Preferred Shares. Pursuant to this agreement, the Registrant
agreed to register the resale by the purchasers of the common stock underlying
the Preferred Shares. This registration rights agreement provides that if the
Registrant does not register for resale the common shares within 60 days of the
closing date (or 150 days, which may be extended until April 14, 2004 in certain
circumstances, in the event of a full review of the registration statement by
the Securities and Exchange Commission), then the Registrant must pay each of
the investors 1% of the per share purchase price paid by such investor for each
Preferred Share for each month thereafter that the investor cannot publicly sell
the shares of Common Stock underlying the Preferred Share.
Sanders Morris Harris Inc. acted as placement agent in connection with
the private placement financing transaction. For their services as placement
agent, the Registrant paid Sanders Morris Harris a fee equal to 7%, or
approximately $2,345,400, of the gross proceeds from the financing. The
Registrant also paid for the out-of-pocket expenses incurred by Sanders Morris
Harris and all purchasers in the amount of $45,000. In addition, the Registrant
issued to Sanders Morris Harris a warrant to purchase 881,732 shares of our
common stock at an exercise price of $4.65 per share. The warrant vests and
becomes exercisable in full on April 17, 2003 and has a term of 5 years.
Copies of the form of Subscription Agreement, Registration Rights
Agreement, Placement Agent Agreement, and Common Stock Purchase Warrant are
attached to this report as Exhibits 99.2, 99.3, 99.4 and 99.5, respectively, and
are incorporated herein by this reference.
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
Except as required by law, the Preferred Shares have no voting rights.
The Preferred Shares accrue dividends, commencing on March 1, 2004, at an annual
rate of 5% of the initial stated value of $38.00 per share, payable quarterly.
In the event of a liquidation, dissolution or winding-up of the Company, the
Preferred Shares will be entitled to receive, prior to any distribution on the
common stock,
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a distribution equal to the initial stated value of the Preferred Shares plus
all accrued and unpaid dividends.
Following approval by the Registrant's shareholders of the conversion
of the Preferred Shares, each Preferred Share will be convertible, at the option
of the holder, into 10 shares of our common stock (as adjusted for stock
dividends, combinations, splits or similar events), for an aggregate of
8,817,320 shares of common stock. In the event the Registrant's shareholders
approve the issuance of the common stock upon conversion of the Preferred
Shares, each of the purchasers of the Preferred Shares has agreed to promptly
convert all Preferred Shares into common stock.
A copy of the Registrant's Certificate of Determination of Preferences,
Rights and Limitations of Series A Convertible Preferred Stock is attached to
this report as Exhibit 4.1, and is incorporated herein by this reference.
PRESS RELEASES
On October 20, 2003, the Registrant issued a press release announcing
the first closing of the private placement financing and the execution of the
lease agreements for the Mexico facilities, and providing guidance for fiscal
year 2004 financial results. A copy of the press release is attached to this
report as Exhibit 99.6 and is incorporated herein by this reference. On October
27, 2003, the Registrant issued a press release announcing the second and final
closing of the private placement financing. A copy of the press release is
attached to this report as Exhibit 99.7 and is incorporated herein by this
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
None.
(b) Pro forma Financial Information.
None.
(c) Exhibits.
The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Lease Agreement, dated as of August 29, 2003, between
Tarrant Mexico S. de R.L. de C.V. and Acabados Y
Cortes Textiles S.A. de C.V.
2.2 Lease Agreement, dated as of August 29, 2003, between
Tarrant Mexico S. de R.L. de C.V. and Acabados Y
Cortes Textiles S.A. de C.V.
4.1 Certificate of Determination of Preferences, Rights
and Limitations of Series A Convertible Preferred
Stock.
99.1 Purchase Commitment Agreement, dated October 16, 2003,
between Tarrant Mexico S. de R.L. de C.V. and Acabados
Y Cortes Textiles S.A. de C.V.
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99.2 Form of Subscription Agreement between the Registrant
and the Purchaser to be identified therein.
99.3 Registration Rights Agreement dated October 17, 2003
among the Registrant and Sanders Morris Harris Inc. as
agent and attorney-in-fact for the Purchasers
identified therein.
99.4 Placement Agent Agreement dated October 13, 2003
between the Registrant and Sanders Morris Harris Inc.
99.5 Common Stock Purchase Warrant dated October 17, 2003
between the Registrant and Sanders Morris Harris Inc.
99.6 Press release dated October 20, 2003 issued by the
Registrant.
99.7 Press release dated October 27, 2003 issued by the
Registrant.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TARRANT APPAREL GROUP
Date: October 27, 2003 By: /s/ Patrick Chow
-----------------------------------------
Patrick Chow
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Lease Agreement, dated as of August 29, 2003, between Tarrant
Mexico S. de R.L. de C.V. and Acabados Y Cortes Textiles S.A. de
C.V.
2.2 Lease Agreement, dated as of August 29, 2003, between Tarrant
Mexico S. de R.L. de C.V. and Acabados Y Cortes Textiles S.A. de
C.V.
4.1 Certificate of Determination of Preferences, Rights and Limitations
of Series A Convertible Preferred Stock.
99.1 Purchase Commitment Agreement, dated October 16, 2003, between
Tarrant Mexico S. de R.L. de C.V. and Acabados Y Cortes Textiles
S.A. de C.V.
99.2 Form of Subscription Agreement between the Registrant and the
Purchaser to be identified therein.
99.3 Registration Rights Agreement dated October 17, 2003 among the
Registrant and Sanders Morris Harris Inc. as agent and
attorney-in-fact for the Purchasers identified therein.
99.4 Placement Agent Agreement dated October 13, 2003 between the
Registrant and Sanders Morris Harris Inc.
99.5 Common Stock Purchase Warrant dated October 17, 2003 between the
Registrant and Sanders Morris Harris Inc.
99.6 Press release dated October 20, 2003 issued by the Registrant.
99.7 Press release dated October 27, 2003 issued by the Registrant.
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