EXHIBIT 99.4
PLACEMENT AGENT AGREEMENT
October 13, 2003
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Inc.
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
1. INTRODUCTORY. Tarrant Apparel Group, a California corporation
(the "Company"), proposes to sell up to 1,000,000 shares (the "Shares") of
Series A Convertible Preferred Stock, no par value ("Preferred Stock"), of the
Company at a purchase price of $38.00 per share (the "Offering Price").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents, warrants, and agrees that:
(i) All reports and statements required to be filed by
the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder, due at
or prior to the date of this Agreement have been made. Such filings,
together with all documents incorporated by reference therein, are
referred to as "Exchange Act Documents." Each Exchange Act Document, as
amended, conformed in all material respects to the requirements of the
Exchange Act and the rules and regulations thereunder, and no Exchange
Act Document, as amended, at the time each such document was filed,
included any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading.
(ii) The audited financial statements, together with the
related notes of the Company at December 31, 2002 and 2001, and for the
years then ended, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2002, and the unaudited financial
statements of the Company at June 30, 2003, and for the six months then
ended (collectively, the "Company Financial Statements"), included in
the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2003, respectively, fairly present in all material respects, on the
basis stated therein and on the date thereof, the financial position of
the Company at the respective dates therein specified and its results
of operations and cash flows for the periods then ended (subject to, in
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the case of the unaudited financial statements, normal audit
adjustments). To the knowledge of the Company, such statements and
related notes have been prepared in accordance with generally accepted
accounting principles in the United States applied on a consistent
basis except as expressly noted therein (provided that the unaudited
financial statements lack footnotes and other presentation items).
(iii) Except as disclosed on SCHEDULE 2(iii), subsequent to
June 30, 2003, the Company has not incurred any material liabilities or
obligations, direct or contingent, except in the ordinary course of
business and except for liabilities or obligations reflected or
reserved against on the Company's balance sheet dated June 30, 2003,
and there has not been any material adverse change, or to the actual
knowledge of the Company, any development involving a prospective
material adverse change, in the condition (financial or otherwise),
business, or results of operations of the Company or any change in the
capital or material increase in the long-term debt of the Company, nor
has the Company declared, paid, or made any dividend or distribution of
any kind on its capital stock.
(iv) All action required to be taken by the Company
necessary for the authorization of this Agreement, the Certificate, and
the Related Agreements, the performance of all obligations of the
Company hereunder and thereunder at the Closing (as hereinafter
defined), and as a condition to the due and proper authorization,
issuance, sale, and delivery of the Shares to subscribers therefor in
accordance with the terms of this Agreement and the Conversion Shares
pursuant to the Certificate, as the case may be, has been, or prior to
the Closing Date, will have been taken, other than, with respect to the
issuance of the shares (the "Conversion Shares") of Common Stock, no
par value ("Common Stock") of the Company issuable upon conversion of
the Shares, the approval by the Company's shareholders of the
conversion of the Shares into the Conversion Shares, as required under
Nasdaq Marketplace Rule 4350 ("Nasdaq Approval") and pursuant to the
terms of the Certificate, and the increase of the number of authorized
shares of Common Stock of the Company from 35,000,000 shares to
100,000,000 shares, which the Company undertakes to obtain as promptly
as practicable; and upon the payment of the consideration for the
Shares specified herein, the Shares will be duly and validly issued,
fully paid, and non-assessable with no personal liability attaching to
the ownership thereof and free and clear of all liens imposed by or
through the Company. The Conversion Shares have been duly authorized
except that shareholder approval of the issuance of the Conversion
Shares has not and will not be obtained prior to the Closing, and upon
issuance of the Conversion Shares upon proper conversion of the Shares,
in accordance with the terms of the Certificate, the Conversion Shares
will be validly issued, fully paid, and non-assessable.
(v) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
California, and has all requisite right, power, and authority to own or
lease its properties, to conduct its
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business as described in the Exchange Act Documents, and to execute,
deliver, and perform this Agreement, the Subscription Agreements
between the Company and the purchasers of the Preferred Stock in the
form attached as EXHIBIT A hereto (the "Subscription Agreements"), the
Certificate of Determination of Preferences, Rights, and Limitations of
Series A Preferred Stock in the form attached as EXHIBIT B hereto (the
"Certificate"), the Registration Rights Agreement in the form attached
as EXHIBIT C hereto (the "Registration Rights Agreement" and together
with the Subscription Agreements, the "Related Agreements"), to issue
and sell the Shares and the Conversion Shares, and to carry out the
provisions of this Agreement, the Related Agreements and the
Certificate and to carry on its business as presently conducted. The
Company is duly qualified to do business and in good standing as a
foreign corporation in all other jurisdictions in which its ownership
or leasing of properties, or the conduct of its business requires or
may require such qualification except where the failure to be so
qualified would not have a material adverse effect on the Company. The
Company has complied in all material respects with all material laws,
rules, regulations, applicable to the Company's business, operations,
properties, assets, products, and services, and the Company is in
possession of and operating in compliance with all material permits,
licenses, and other authorization, required to conduct its business as
currently conducted.
(vi) The authorized capital stock of the Company consists
of 35,000,000 shares of Common Stock, no par value, of which 18,765,425
shares were issued and outstanding as of August 12, 2003, of which
167,982 were held of record by the Company, and 2,000,000 shares of
preferred stock, no par value, none of which were issued and
outstanding as of August 12, 2003. Except as contemplated by this
Agreement, or as described in the Exchange Act Documents or on SCHEDULE
2(vi), (a) there is no commitment by the Company to issue any shares of
capital stock, subscriptions, warrants, options, convertible
securities, or other similar rights to purchase or receive Company
securities or to distribute to the holders of any of its equity
securities any evidence of indebtedness, cash, or other assets, (b) the
Company is under no obligation (contingent or otherwise) to purchase,
redeem, or otherwise acquire any of its equity or debt securities or
any interest therein, and (c) to the Company's knowledge there are no
voting trusts or similar agreements, shareholders' agreements, pledge
agreements, buy-sell agreements, rights of first refusal, preemptive
rights, or proxies relating to any securities of the Company. Except as
set forth in the Exchange Act Documents or filings with the Commission
made by third parties pursuant to Schedule 13D or 13G or Form 3 or 4,
and to the knowledge of the Company, no person holds of record or
beneficially, 5% or more of the outstanding shares of the capital stock
of the Company. All outstanding securities of the Company were issued
in compliance with applicable Federal and state securities laws.
(vii) Except as disclosed in the Exchange Act Documents or
as described on SCHEDULE 2(vii), there is no material pending or, to
the knowledge of
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the Company, threatened (a) action, suit, claim, proceeding, or
investigation against the Company, at law or in equity, or before or by
any Federal, state, municipal, or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign (each, a "Governmental Body"), (b) arbitration proceeding
against the Company, (c) governmental inquiry against the Company, or
(d) any action or suit by or on behalf of the Company pending or
threatened against others.
(viii) The Company is not in violation of its articles of
incorporation or bylaws, or in default, or with the giving of notice or
lapse of time or both, would be in default, in the performance of any
material obligation, agreement, or condition contained in any lease,
license, material contract, indenture, or loan agreement or in any
bond, debenture, note, or any other evidence of indebtedness, except
for such defaults as would not have a material adverse effect on the
Company. The execution, delivery, and performance of this Agreement,
the Certificate, the Related Agreements, and the Escrow Agreement (as
hereinafter defined), the incurrence of the obligations herein, the
issuance, sale, and delivery of the Shares, and the consummation of the
transactions contemplated herein, have been duly authorized by all
requisite corporate action on the part of the Company and (a) do not
and will not conflict with the Company's articles of incorporation or
bylaws, (b) do not and will not, with or without the passage of time or
the giving of notice, result in the breach of, or constitute a default,
cause the acceleration of performance, or require any consent under, or
result in the creation of any lien, charge or encumbrance upon any
property assets of the Company pursuant to, any material loan
agreement, mortgage, deed of trust, indenture, or other instrument or
agreement to which the Company is a party or by which the Company or
its properties are bound, except such consents as have been obtained as
of the date hereof or to the extent that the same have been, or prior
to the Closing Date will be, waived or cured, and the Nasdaq Approval,
and the increase of the number of authorized shares of Common Stock of
the Company from 35,000,000 shares to 100,000,000 shares, which the
Company undertakes to obtain as promptly as practicable, or (c) do not
and will not result in the violation of any law, statute, order, rule,
administrative regulation, or decree of any court, or governmental
agency or body having jurisdiction over the Company or its properties.
(ix) Except as disclosed in the Exchange Act Documents or
as described on SCHEDULE 2(ix), there are no pre-emptive rights or
other rights to subscribe for or to purchase, or any restriction upon
the voting or transfer of, shares of Common Stock pursuant to the
Company's articles of incorporation, bylaws, or any agreement or other
instrument to which the Company is a party. Except as disclosed on
SCHEDULE 2(ix), the issuance of the Shares is not subject to any
preemptive right of any shareholder of the Company or to any right of
first refusal or other right in favor of any person.
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(x) This Agreement has been duly and validly executed and
delivered by or on behalf of the Company and constitutes a legal,
valid, and binding obligation of the Company enforceable in accordance
with its terms, except to the extent that its enforceability is limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, and (b) laws relating to
the availability of specific performance, injunctive relief, or other
equitable remedies and except as enforceability of the indemnity and
contribution provisions contained in Section 7 hereof may be limited by
applicable law or principles of public policy.
(xi) The escrow agreement (the "ESCROW AGREEMENT") among
the Company, you, and Sterling Bank (the "ESCROW Agent") has been duly
and validly executed and delivered by or on behalf of the Company and
constitutes a legal, valid, and binding obligation of the Company
enforceable in accordance with its terms, except as such enforceability
may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and
(b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(xii) No consent, approval, authorization, or order of any
court or governmental authority or agency is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required by the National Association
of Securities Dealers, Inc. ("NASD"), the Securities Act of 1933, as
amended (the "Act"), or the rules and regulations thereunder or state
securities or Blue Sky laws.
(xiii) Except as would not have a material adverse effect on
the business, assets, results of operation, or condition of the
Company, the Company has filed, or caused to be filed, on a timely
basis, all tax returns (including payroll, unemployment, and other
taxes related to its employees and independent contractors) required to
be filed with any Governmental Body and has paid or caused to be paid
all taxes, levies, assessments, tariffs, duties or other fees imposed,
assessed, or collected by any Governmental Body that may have become
due and payable pursuant to those tax returns or otherwise except taxes
being disputed by the Company in good faith. Except as disclosed on
SCHEDULE 2(xiii), no deficiency assessment with respect to or proposed
adjustment of any of the Company's Federal, state, municipal, or local
tax returns has occurred or is threatened. There has been no tax lien
imposed by any Governmental Body outstanding against the Company's
assets or properties, except the lien for current taxes not yet due.
The charges, accruals, and reserves on the books of the Company with
respect to taxes for all fiscal periods are adequate, in the opinion of
the Company, and the Company does not know of any actual or proposed
tax assessment for any fiscal period or of any basis therefor against
which adequate reserves have not been set up. Except as disclosed on
SCHEDULE 2(xiii), the
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Company has not been advised that any Federal income tax return of the
Company has been, or will be, examined or audited by the Internal
Revenue Service.
(xiv) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed for quotation with the symbol
"TAGS" on the Nasdaq National Market System maintained by the Nasdaq
Stock Market, Inc.
(xv) The Company has not during the past six months
offered or sold any security by or for the Company that is of the same
or a similar class as the Shares, other than offers of securities made
solely to accredited investors or otherwise under an employee benefit
plan as defined in Rule 405 under the Act, securities issued in
connection with acquisitions, or other securities that will not
invalidate the exemption from registration relied on to offer and sell
the Shares.
(xvi) Neither the Company nor any of its affiliates is or
has been subject to any order, judgment, or decree of any court of
competent jurisdiction temporarily, preliminarily, or permanently
enjoining such person for failure to comply with Rule 503 under
Regulation D.
(xvii) Other than (A) Nasdaq Approval and approval by the
Company's shareholders of the issuance of the Conversion Shares
pursuant to the terms of the Certificate and the increase in the number
of shares of authorized Common Stock of the Company, which the Company
undertakes to obtain as promptly as practicable and (B) the filing of
the Certificate, which the Company undertakes to file with the
California Secretary of State prior to the Closing, (i) the execution,
delivery, and performance by the Company of this Agreement and the
Related Agreements, (ii) the offer and sale of the Shares, and (iii)
the issuance of the Conversion Shares upon due conversion of the Shares
require no consent of, action by or in respect of, or filing with, any
person or Governmental Body other than those consents that have been
obtained and filings that have been made pursuant to applicable state
securities laws and post-sale filings pursuant to applicable state and
federal securities laws, which the Company undertakes to file within
the applicable time period.
3. REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ INC.
You represent and warrant to, and agree with, the Company that:
(i) You have been duly organized and are validly existing
and in good standing as a corporation under the laws of the State of
Texas, with power and authority (corporate and other) to perform your
obligations under this Agreement and the Escrow Agreement; you are a
broker-dealer registered and in good standing under the Exchange Act
and under the securities or Blue Sky laws of each state in which the
Shares are being offered or sold by you, and you are a member in good
standing of the NASD; you are in possession of and operating in
compliance with all authorizations, licenses, permits, consents,
certificates, and
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orders required for the performance of your duties under this Agreement
and the Escrow Agreement, and your performance of your duties hereunder
and thereunder will be in compliance with all applicable laws,
including state securities and Blue Sky laws.
(ii) There are no legal or governmental proceedings
pending to which you are a party or of which any of your properties is
the subject or, to your knowledge, threatened, which, if determined
adversely to you, would individually or in the aggregate materially and
adversely affect your ability to perform your obligations under this
Agreement or the Escrow Agreement.
(iii) No consent, approval, authorization or order of any
court or governmental authority or agency is required for the
performance by you of your obligations under this Agreement, except
such as may be required by the NASD or under Regulation D or state
securities or Blue Sky laws.
(iv) This Agreement has been duly and validly executed and
delivered by or on behalf of you and constitutes a legal, valid, and
binding obligation of you enforceable in accordance with its terms,
except to the extent that its enforceability is limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium, or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally, and (b) laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies
and except as enforceability of the indemnity and contribution
provisions contained in Section 7 hereof may be limited by applicable
law or principles of public policy.
(v) The Escrow Agreement among the Company, you, and the
Escrow Agent has been duly and validly executed and delivered by or on
behalf of you and constitutes a legal, valid, and binding obligation of
you enforceable in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights generally and
(b) laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
4. OFFERING AND SALE OF THE SHARES. (a) On the basis of the
representations, warranties, and covenants herein contained, but subject to the
terms and upon the conditions herein set forth, you are hereby appointed the
non-exclusive placement agent of the Company during the term herein specified
(the "Offering Period") for the purpose of finding subscribers for the Shares on
a best-efforts basis for the account of the Company at the Offering Price
through a private offering (the "Offering") to an unlimited number of
"accredited investors" (as such term is defined in Rule 501 of Regulation
D)("Accredited Investors") pursuant to and in accordance with the Act. Subject
to the performance by the Company of all its obligations to be performed
hereunder, and to the completeness and accuracy of all the representations and
warranties contained herein, you hereby accept such agency and agree on the
terms and conditions herein set forth to use
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your best efforts during the Offering Period to find subscribers for Shares at
the Offering Price. Your agency hereunder, which is terminable as provided in
Section 11 hereof, shall terminate at 11:59 p.m., Houston, Texas time, on
October 31, 2003; provided that such termination date (the "Termination Date")
may be extended by mutual written agreement of the parties until November 30,
2003.
(b) Each Investor desiring to purchase Shares will be required to:
(i) complete, execute, and deliver to you an executed copy of (a) a Subscription
Agreement between the Investor and the Company, in the form attached as EXHIBIT
A hereto (the "Subscription Agreement"), and (b) an Investor Questionnaire, in
the form attached as EXHIBIT D hereto, and (ii) deliver to you payment for such
subscription in the form of a check payable to the order of "TARRANT APPAREL
GROUP - ESCROW ACCOUNT" or a wire transfer of immediately available funds in the
amount that the Investor desires to purchase. Any payment you receive that does
not conform to this requirement will be returned to an Investor by the end of
the next business day following receipt. Upon receipt, you shall hold all such
Subscription Agreements and Investor Questionnaires for safekeeping and
immediately forward all funds delivered to you to the Escrow Agent. The Escrow
Agent, upon receipt of such funds, will hold the funds in an escrow account
pursuant to the Escrow Agreement. You shall promptly forward each executed
Subscription Agreement received to the Company for acceptance or rejection
together with a schedule setting forth the name and address of each subscriber
and the amount received from each subscriber. The Company shall notify you of
such acceptance or rejection within 10 days of receipt of a Subscription
Agreement.
(c) In the event that acceptable subscriptions for $30,400,000 in
Shares (the "Minimum Shares") shall not have been received and accepted by the
Company by the Termination Date, all funds received from subscribers (if any)
shall be returned in full, and your agency and this Agreement shall terminate
without obligation on your part or on the part of the Company.
(d) If, by the Termination Date or such earlier time as may be
agreed upon by you and the Company, you have received subscriptions for the
Minimum Shares and such subscriptions have been accepted by the Company (in its
sole discretion), you shall promptly notify the Company in writing of the
aggregate amount of Shares for which you have received subscriptions (the
"Notice Date"). Payment of the purchase price for the Shares for which you have
found subscribers, and delivery, with respect to each subscriber for Shares, of
a copy of a Subscription Agreement signed by such subscriber (the "Closing"),
shall then be made at such place and time as shall be agreed upon between you
and the Company, no later than the fifth full business day after the Notice Date
(the "Closing Date").
(e) As compensation for your services, a cash commission will be
paid to you with respect to subscriptions received by you as to which the
payments and deliveries provided for in this Section 4 are made at the Closing
Date equal to 7.0% of the purchase price of each Share purchased at the Closing.
Such commissions shall be paid to you on the Closing Date by bank wire transfer
payable in immediately available funds. In
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addition, the Company agrees to reimburse you for your reasonable out-of-pocket
expenses in accordance with Section 6 hereof.
(f) Neither you nor the Company shall, directly or indirectly, pay
or award any finder's fees, commissions or other compensation to any person
engaged by a potential investor for investment advice as an inducement to such
advisor to advise the purchase of the Shares; provided, however, that normal
sales commissions payable to a registered broker-dealer or other properly
licensed person for selling the Shares shall not be prohibited hereby.
(g) You will prepare and file such statements and reports as are
or may be required to enable the Shares to be qualified for sale under the
securities laws of such jurisdictions as you may designate.
(h) As additional compensation, the Company will issue to you on
the Closing Date a Common Stock purchase warrant (the "AGENT'S WARRANT") in
substantially the form attached hereto as EXHIBIT E granting you the right to
purchase from the Company for a period commencing on the date six months after
the Closing Date and ending five years after the Closing Date, a number of
shares of Common Stock equal to 10% of the number of common equivalent shares
sold in the Offering, at a per share purchase price equal to the higher of the
closing price of the Common Stock as reported by The Nasdaq Stock Market on the
Closing Date or the book value per share (i.e., shareholders' equity divided by
shares outstanding) of the Common Stock on the Closing Date.
(i) In connection with the Offering you will, to the extent within
your control, conduct the Offering in accordance with the applicable provisions
of the Act and Regulation D so as to preserve for the Company the exemption
provided by Rule 506 of Regulation D. You agree not to offer or sell the Shares
by means of (a) any means of general solicitation, including any advertisement,
article, notice, or other communication published in any newspaper, magazine, or
similar media or broadcast over television or radio or (b) any seminar or
meeting, whose attendees have been invited by any general solicitation or
general advertising. Prior to the sale of any of the Shares, you will have
reasonable grounds to believe, and in fact believe, that each subscriber for
Shares is an Accredited Investor. You agree not to disclose any material
nonpublic information regarding the Company to any subscriber except as such
disclosure may be permitted pursuant to Regulation F-D and is agreed to in
advance by the Company.
5. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with you that:
(a) Except as contemplated or described in this Agreement or in a
public disclosure made prior to the date hereof, it will not, prior to the
Closing Date, incur any material liability or obligation, direct or contingent,
or enter into any material transaction, in each case, other than in the ordinary
course of business. It will not, prior to the Closing Date, declare or pay any
dividend on the Common Stock or make any distribution on the Common Stock
payable to shareholders of record on a date prior to the Closing Date.
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(b) It will cooperate with you to enable the Shares to be
qualified for sale under the securities laws of such jurisdictions as you may
designate, subject to approval by the Company, and at your request will make
such applications and furnish such information as may be required of it for that
purpose; provided, however, that you and the Company shall first determine
whether an exemption from registration other than the Uniform Limited Offering
Exemption (ULOE) or a similar exemption is available in each such jurisdiction
and the Company shall not be required to qualify to do business or to file a
general consent to service of process in any such jurisdiction or to subject
itself to taxation. It will, from time to time, prepare and file such statements
and reports as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for the distribution of the
Shares.
(c) It will make available to you and each purchaser of Shares at
a reasonable time prior to the Closing Date the opportunity to ask questions and
receive answers concerning the terms and conditions of the Offering and to
obtain any additional information that the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of any information in the Exchange Act Documents or otherwise furnished by the
Company to you or any purchaser of Shares; provided, however, that the Company
shall not be required to disclose any material nonpublic information to any
purchaser of Shares.
(d) It will file all reports required by Regulation D with regard
to sales of the Shares and use of the proceeds therefrom; provided that you
provide all relevant information to the Company in writing as to purchasers of
the Shares required for such filings.
(e) It will not offer or sell any securities of the Company that
are of the same or a similar class as the Shares for a period of six months
after the Closing Date, other than those offers or sales of securities under an
employee benefit plan as defined in Rule 405 under the Act, in connection with
options, warrants, or convertible securities outstanding as of the Closing Date,
or in connection with an acquisition of assets or another business by the
Company if such offering will be integrated with the Offering of the Shares
pursuant to this Agreement for purposes of the exemptions under Regulation D, so
as to invalidate the exemption from registration relied on to offer and sell the
Shares.
(g) For a period of at least 18 months following the Closing Date,
the Company will maintain the registration of its Common Stock under Section 12
of the Exchange Act so long as the Exchange Act requires it to be so registered,
will comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act unless required to do so by the Exchange Act.
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(h) The Company shall prepare and file with the Nasdaq Stock
Market an additional shares listing application covering the Shares and take all
steps necessary to cause such shares to be approved for listing as soon as
practicable thereafter.
(i) For a period of at least 18 months following the Closing Date,
the Company will use its commercially reasonable best efforts (i) to timely file
all reports required to be filed by the Company after the date hereof under the
Securities Act and the Exchange Act (including the reports pursuant to Section
13(a) or 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule
144) and the rules and regulations adopted by the Commission thereunder), (ii)
if the Company is not required to file reports pursuant to such sections, it
will prepare and furnish to the purchasers of Shares and make publicly available
in accordance with Rule 144(c) such information as is required for the
purchasers to sell the Shares under Rule 144, and (iii) to take such further
action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable the purchasers to sell Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144, including causing its attorneys to issue and deliver any
appropriate legal opinion required to permit a purchaser to sell Shares under
Rule 144 upon receipt of appropriate documentation relating to such sale.
(j) Unless previously prepared and filed, simultaneously with the
Closing, the Company agrees that it shall prepare and file with the Commission a
preliminary proxy statement (as amended and supplemented, the "Proxy Statement")
in connection with the meeting of its shareholders (the "Shareholders Meeting").
At the Shareholders Meeting the Company will seek to obtain shareholder approval
("Shareholder Approval") of the issuance of the Conversion Shares and of the
increase in the authorized shares of Common Stock of the Company from 35,000,000
to 100,000,000 shares. The Company shall use its reasonable efforts to respond
to written comments of the Commission and its staff, and, to the extent
permitted by law, to cause the Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after responding to all such comments to
the satisfaction of the Commission staff. The Company shall take all reasonable
steps necessary to file with the Commission and have declared effective or
cleared by the Commission any amendment or supplement to the Proxy Statement so
as to correct the same and cause the Proxy Statement as so corrected to be
disseminated to the shareholders of the Company, in each case to the extent
required by applicable law.
6. PAYMENT OF EXPENSES. If this Agreement becomes effective and
the transactions contemplated by this Agreement are consummated, the Company
will pay (a) all reasonable expenses incident to the performance of the
obligations of the Company under this Agreement, (b) all of your reasonable
out-of-pocket expenses (including fees and disbursements of your counsel,
travel, and related expenses incurred in connection with this Agreement and the
Offering) incurred in connection with this Agreement, preparing to market, and
marketing the Shares, (c) the fees and expenses of the Escrow Agent, and (d) the
reasonable legal fees and expenses incurred by counsel to subscribers for Shares
in connection with the negotiation, execution, and delivery of subscription
11
agreements and any related agreements; provided that the aggregate expenses
reimbursed pursuant to clauses (b) and (d) shall not to exceed $30,000 in the
aggregate.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless you and each person, if any, who controls you within
the meaning of the Act, against any losses, claims, damages, liabilities, or
expenses (including, unless the Company elects to assume the defense as
hereinafter provided, the reasonable cost of investigating and defending against
any claims therefor and counsel fees incurred in connection therewith), joint or
several, which arise out of the Company's breach of a representation or warranty
or covenant or agreement contained in this Agreement; provided that in no case
is the Company to be liable with respect to any claims made against you, or any
such controlling person unless you or such controlling person shall have
notified the Company in writing promptly after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon you or such controlling person, but failure to notify the Company of any
such claim shall not relieve it from any liability that it may have to you or
such controlling person otherwise than on account of the indemnity agreement
contained in this paragraph. The Company will be entitled to participate at its
own expense in the defense, or if it so elects, to assume the defense of any
suit brought to enforce any such liability, but, if the Company elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
reasonably acceptable to you. In the event the Company elects to assume the
defense of any such suit and retain such counsel, you or such controlling person
or persons, defendant or defendants in the suit, may retain additional counsel
but shall bear the fees and expenses of such counsel unless (i) the Company
shall have specifically authorized the retaining of such counsel or (ii) the
parties to such suit include you or such controlling person or persons, and the
Company and you or such controlling person or persons have been advised by
counsel that one or more material legal defenses may be available to you or them
that may not be available to the Company in which case the Company shall not be
entitled to assume the defense of such suit notwithstanding its obligation to
bear the reasonable fees and expenses of such counsel. In no event shall the
Company be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. The Company shall not be required to indemnify any
person for any settlement of any such claim effected without the Company's
consent, which shall not be unreasonably withheld. The Company shall not,
without your consent, consent to the entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof, the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. This indemnification
obligation will be in addition to any primary liability that the Company might
otherwise have. The foregoing obligation of indemnification of the Company shall
be limited to the net proceeds of the Offering.
(b) You agree to indemnify and hold harmless the Company, each of
the Company's officers, directors, and each other person, if any, who controls
the Company within the meaning of the Act, against any losses, claims, damages,
liabilities, or expenses (including, unless you elect to assume the defense, the
reasonable cost of
12
investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, which (i) arise of any
untrue statement of a material fact with respect to the Company made by you or
any purchaser of Shares not contained in an Exchange Act Document or other
written material provided to you by the Company, (ii) arise out of any acts or
omissions by you or any purchaser of Shares that cause the offering to involve a
public offering under the Act or your failure to be properly licensed to sell
the Shares or (iii) arise out of your breach of a representation or warranty or
covenant or agreement contained in this Agreement; provided, however, that in no
case are you to be liable with respect to any claims made against the Company or
any such person against whom the action is brought unless the Company or such
person shall have notified you in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Company or such person, but failure to
notify you of such claim shall not relieve you from any liability that you may
have to the Company or such person otherwise than on account of the indemnity
agreement contained in this paragraph. You shall be entitled to participate at
your expense in the defense, or if you so elect, to assume the defense of any
suit brought to enforce any such liability, but, if you elect to assume the
defense, counsel chosen by you and reasonably acceptable to the Company shall
conduct such defense. In the event that you elect to assume the defense of any
such suit and retain such counsel, the Company, said officers and directors and
any person or persons, defendant or defendants in the suit, may retain
additional counsel but shall bear the fees and expenses of such counsel unless
(i) you shall have specifically authorized the retaining of such counsel or (ii)
the parties to such suit include you or such controlling person or persons, and
the Company and you or such controlling person or persons have been advised by
counsel that one or more material legal defenses may be available to the Company
that may not be available to you or them in which case you shall not be entitled
to assume the defense of such suit notwithstanding your obligation to bear the
reasonable fees and expenses of such counsel. You shall not be liable to
indemnify any person for any settlement of any such claim effected without your
or its consent which consent shall not be unreasonably withheld. You shall not,
without the consent of the Company, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof, the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation. This indemnification
obligation will be in addition to any primary liability that you might otherwise
have.
(c) If the indemnification provided for in this Section 7 is
unavailable, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect not only the relative benefits received by the Company on
one hand and you on the other from the offering, but also the relative fault of
the Company on the one hand and you on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities, or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and you on the other, shall be deemed to be in the same
proportion as the total
13
net proceeds from the Offering (before deducting expenses) received by the
Company, bear to the total selling commissions received by you and the value of
the Agent's Warrant issued to you pursuant to Section 4(h). The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission, and whether a party breached a
representation or warranty or covenant or agreement contained in this Agreement.
The Company and you agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective representations and warranties of you and the Company as set forth in
this Agreement or made by them respectively, pursuant to this Agreement, shall
remain in full force and effect, regardless of any investigation made by or on
behalf of you, the Company, or any of the officers or directors of the Company
or any controlling person, and shall survive delivery of and payment for the
Shares for a period ending on the date two years subsequent to the Closing Date.
9. CONDITIONS OF YOUR OBLIGATIONS. Your obligations hereunder are
subject to the accuracy in all material respects at and (except as otherwise
stated herein) as of the date hereof and at and as of the Closing Date, of the
representations and warranties made herein by the Company, to the compliance in
all material respects at and as of the Closing Date by the Company with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Date and to the following additional
conditions:
(a) You shall not have stated in writing prior to the Closing Date
to the Company that any Exchange Act Document, or any amendment or supplement
thereto contains an untrue statement of fact which, in your reasonable opinion,
is material, or omits to state a fact which, in your reasonable opinion, is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) You shall have received a certificate, dated the Closing Date,
on behalf of the Company by the Chief Executive Officer or the President and the
chief financial or accounting officer of the Company to the effect that:
14
(i) To the best of the knowledge of the signers, the
representations and warranties of the Company in this Agreement are
true and correct in all material respects at and as of the Closing
Date, and the Company has complied in all material respects with all
the agreements and satisfied in all material respects all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) Between the date of this Agreement and the Closing
Date, no litigation has been instituted or, to the knowledge of the
Company, threatened against the Company of a character required to be
disclosed in an Exchange Act Document under Item 103 of Regulation S-K
that has not been so disclosed to you; and
(iii) Between the date of this Agreement and the Closing
Date, there has not been any material adverse change in the financial
condition, business, or results of operations of the Company.
(d) The Company shall have entered into the Registration Rights
Agreement with the Purchasers in the form attached hereto as EXHIBIT C.
(e) The Company shall have prepared the Proxy Statement and be
prepared to file it with the Commission immediately following the Closing.
(f) The Placement Agent shall have entered into a Voting Agreement
in the form attached hereto as EXHIBIT F with beneficial owners of at least 51%
of the issued and outstanding shares of Common Stock of the Company.
(g) The Company shall have entered into a new lease agreements for
its facilities in Mexico on terms reasonable acceptable to the Placement Agent.
If any of the conditions provided for in this Section 9 shall not have
been satisfied when and as required by this Agreement, this Agreement may be
terminated by you by notifying the Company of such termination in writing at or
prior to the Closing Date, but you shall be entitled to waive any of such
conditions.
10. EFFECTIVE DATE. This Agreement shall become effective at 11:00
A.M., Houston time, on the date hereof (the "Effective Time").
11. TERMINATION. In the event of any termination of this Agreement
under this or any other provision of this Agreement, there shall be no liability
of any party to this Agreement to any other party, other than as provided in
Sections 6, 7, and 8 and this Section 11.
This Agreement may be terminated after the Effective Time by (a) the
Company for any reason by notice to you and (b) you by notice to the Company (i)
if at or prior to the Closing Date trading in securities on the New York Stock
Exchange, the American
15
Stock Exchange, or the Nasdaq Stock Market (collectively, the "Exchanges") shall
have been suspended for longer than four consecutive hours or minimum or maximum
prices shall have been established on either such exchange or stock market, or a
banking moratorium shall have been declared by Texas or United States
authorities (unless such suspension is made pending completion of the sale of
the Shares, at which time, such suspension will be lifted); (ii) if at or prior
to the Closing Date there shall have been a material escalation of hostilities
between the United States and any foreign country (other than Iraq), or any
other material insurrection or armed conflict involving the United States which,
in your reasonable judgment, after consultation with the Company, makes it
impracticable or inadvisable to offer or sell the Shares; or (iii) if there
shall be any material litigation or regulatory action, pending or threatened
against or involving the Company, which, in your reasonable judgment, after
consultation with the Company, makes it impracticable or inadvisable to offer or
deliver the Shares on the terms contemplated by this Agreement.
If, and only if, the Company terminates this Agreement after it becomes
effective for any reason (other than your material failure to comply with your
obligations under this Agreement or material breach of your representations and
warranties) or the Offering fails to close because of the Company's breach of
any representations or warranties contained in this Agreement or the Company's
failure to fulfill its covenants and agreements contained in this Agreement, the
Company shall pay you your actual out-of-pocket expenses incurred as provided in
Section 6 hereof.
12. AGREEMENT CONCERNING DISCLOSURE OF INFORMATION. You agree to
treat confidentially any material nonpublic information that is furnished to you
(or to parties acting on your behalf) by or on behalf of the Company (the
"Information"). You agree that you will use the Information only for the
purposes related to a determination of your willingness to act as non-exclusive
selling agent pursuant to this Agreement, and that the Information will be kept
confidential by you and your partners, members, managers, officers, directors,
employees, agents, and other affiliates (collectively, the "Affiliates"), and
your attorneys and accountants (collectively, the "Professionals"), and that
you, such Affiliates, or Professionals will not disclose the Information to any
investor or other person; provided, however, that the Information may be
disclosed to (a) Affiliates and Professionals who need to know such Information
for the purpose of evaluating or providing services in connection with the your
and your clients' investment in the Company; provided such parties agree to be
bound by this undertaking, (b) to any federal or state regulatory agency and
their employees, agents, and attorneys (collectively, "Regulators") for the
purpose of making any filings with Regulators if disclosure of such Information
is required by law (provided that you advise the Company in writing of the
Information to be so disclosed within a reasonable time prior to such filing),
and (c) any other person to which the Company consents in writing prior to any
such disclosure.
In the event that you are requested or required (by oral questions,
documents, subpoena, civil investigation, demand, interrogatories, request for
information, or other similar process) to disclose to any person or entity any
information supplied to you, your Affiliates, or your Professionals in the
course of their dealings with the Company or their
16
respective representatives, you agree that you will provide the Company with
prompt notice of such request(s) within a reasonable time prior to such
disclosure so that the Company may seek an appropriate protective order and/or
waiver of compliance with the provisions of this Agreement. It is further agreed
that, if a protective order is not obtained, or a waiver is not granted
hereunder, and you are nonetheless, in the written opinion of counsel, compelled
to disclose information concerning the Company to any tribunal or else stand
liable for contempt or suffer the censure or penalty, you may disclose such
information to such tribunal without liability hereunder. Prior to making such
disclosure, you shall deliver a written opinion of your counsel to the Company's
counsel that disclosure is compelled by law. You will exercise your best efforts
to obtain a protective order or other reliable assurance that confidential
treatment will be accorded the Information.
13. NOTICES. All notices or other communications that are required
or permitted under this Agreement shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, by electronic mail, or by courier or overnight carrier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
If to the Company: Tarrant Apparel Group
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
e-mail: ▇▇▇▇▇▇▇.▇▇▇▇@▇▇▇▇.▇▇▇
If to you: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Inc.
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
e-mail: ▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇.▇▇▇
or at such other address as any party shall have furnished to the other parties
in writing.
14. SUCCESSORS. This Agreement shall inure to the benefit of and
be binding upon you, the Company, and their respective successors and legal
representatives, except that neither the Company nor you may assign or transfer
any of its or your rights or obligations under this Agreement without the prior
written consent of the other. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person other than the persons
mentioned in the preceding sentence any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and
17
indemnities of the Company contained in this Agreement shall also be for the
benefit of the person or persons, if any, who control you within the meaning of
Section 15 of the Act, and your indemnities shall also be for the benefit of
each officer and director of the Company and the person or persons, if any, who
control the Company within the meaning of Section 15 of the Act.
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. Any judicial
proceeding brought against either of the parties to this agreement or any
dispute arising out of this Agreement or any matter related hereto may be
brought in the courts of the State of California or in the United States
District Court for the Central District of California and, by its execution and
delivery of this agreement, each party to this Agreement accepts the
jurisdiction of such courts. The foregoing consent to jurisdiction shall not be
deemed to confer rights on any person other than the parties to this Agreement.
The prevailing party in any such litigation shall be entitled to receive from
the losing party or parties all costs and expenses, including reasonable
attorney fees, incurred by the prevailing party.
[Signatures on the following page]
18
If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
TARRANT APPAREL GROUP
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇
--------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Executive Officer
Accepted and delivered in Houston,
Texas as of the date first above written
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ INC.
By: /S/ ▇▇▇ ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: President & CEO
19