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): June 16, 2006
TARRANT APPAREL GROUP
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 0-26006 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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION
UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
NEW CREDIT FACILITY WITH GUGGENHEIM CORPORATE FUNDING LLC
On June 16, 2006, Tarrant Apparel Group entered into a Credit Agreement
with Guggenheim Corporate Funding LLC, as administrative agent and collateral
agent for the lenders. This credit facility provides for borrowings of up to $65
million. This facility consists of an initial term loan of up to $25 million, of
which we borrowed $15.5 at the initial funding, to be used to repay certain
existing indebtedness and fund general operating and working capital needs. An
additional term loan of up to $40 million will be available under this facility
to finance acquisitions acceptable to Guggenheim. All amounts under the term
loans become due and payable in December 2010. Interest under this facility is
payable quarterly, with the interest rate equal to the LIBOR rate plus an
applicable margin based on our debt leverage ratio (as defined in the credit
agreement). Our obligations under the Guggenheim credit facility are secured by
a lien on substantially all the assets of Tarrant Apparel Group and our domestic
subsidiaries, including a pledge of the equity interests of our domestic
subsidiaries and 65% of our placecountry-regionLuxembourg subsidiary. This
credit facility contains customary financial covenants, including covenants that
we maintain minimum levels of EBITDA and interest coverage ratios and
limitations on additional indebtedness. This facility includes customary default
provisions, and all outstanding obligations may become immediately due and
payable in the event of a default.
In connection with Guggenheim credit facility, on June 16, 2006, we
issued the lenders under this facility warrants to purchase up to an aggregate
of 3,857,143 shares of our common stock. These warrants have a term of 10 years.
These warrants are exercisable at a price of $1.88 per share with respect to 20%
of the shares, $2.00 per share with respect to 20% of the shares, $3.00 per
share with respect to 20% of the shares, $3.75 per share with respect to 20% of
the shares and $4.50 per share with respect to 20% of the shares. The exercise
prices are subject to adjustment for certain dilutive issuances pursuant to the
terms of the warrants. A portion of the warrants will not become exercisable
unless and until a specified portion of the initial term loan is actually funded
by the lenders.
Durham Capital Corporation acted as our advisor in connection with the
Guggenheim credit facility. As compensation for its services, we agreed to pay
Durham Capital a cash fee in an amount equal to 1% of the committed principal
amount of the loans under the Guggenheim credit facility. In addition, we issued
Durham Capital a warrant to purchase 77,143 shares of our common stock. This
warrant has a term of 10 years and is exercisable at price of $1.88 per share,
subject to adjustment for certain dilutive issuances. A portion of this warrant
will not become exercisable unless and until a specified portion of the initial
term loan is actually funded by the lenders.
2
CREDIT FACILITY WITH GMAC COMMERCIAL FINANCE LLC
On June 16, 2006, we expanded by our credit facility with GMAC
Commercial Finance LLC by entering into a new Loan and Security Agreement and
amending and restating our previously existing Factoring Agreement with GMAC
Commercial Finance. UPS Capital Corporation is also a lender under the Loan and
Security Agreement. This is a revolving credit facility and has a term of 3
years. The amount we may borrow under this credit facility is determined by a
percentage of eligible accounts receivable and inventory, up to a maximum of $55
million, and includes a letter of credit facility of up to $4 million. Interest
on outstanding amounts under this credit facility is payable monthly and accrues
at the rate of the "prime rate" plus 0.5%. Our obligations under the GMAC
Commercial Finance credit facility are secured by a lien on substantially all
our domestic assets, including a first priority lien on our accounts receivable
and inventory. This credit facility contains customary financial covenants,
including covenants that we maintain minimum levels of EBITDA and interest
coverage ratios and limitations on additional indebtedness. This facility
includes customary default provisions, and all outstanding obligations may
become immediately due and payable in the event of a default.
The press release announcing the closing of Guggenheim and GMAC
Commercial Finance credit facilities is furnished as Exhibit 99.1 to this report
and is incorporated herein by reference.
AMENDMENT TO OUTSTANDING CONVERTIBLE DEBENTURES
In connection with the new credit facilities with Guggenheim and GMAC
Commercial Finance, we agreed with the holders of our outstanding 6% Secured
Convertible Debentures Due December 14, 2007 (the "Debentures") to amend certain
provisions of the Debentures. Pursuant to this amendment, among other
provisions, the holders of the Debentures consented to the new credit facilities
and agreed to release all liens in favor the Debenture holders and terminate
their security interest. In addition, pursuant to this agreement, all holders
have a right, at any time on or prior to June 23, 2006, to have all outstanding
amounts due under their Debenture paid in full by us along with a prepayment
penalty of 5% of the principal amount being repaid.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
ISSUANCE OF WARRANTS TO PURCHASE COMMON STOCK
As noted above, in connection with Guggenheim credit facility and as
additional consideration for the obligations under the credit agreement, on June
16, 2006, we issued the lenders under this facility warrants to purchase up to
an aggregate of 3,857,143 shares of our common stock. These warrants have a term
of 10 years. These warrants are exercisable at a price of $1.88 per share with
respect to 20% of the shares, $2.00 per share with respect to 20% of the shares,
$3.00 per share with respect to 20% of the shares, $3.75 per share with respect
to 20% of the shares and $4.50 per share with respect to 20% of the shares. The
exercise prices are subject to adjustment for certain dilutive issuances
pursuant to the terms of the warrants. A portion of the warrants will not become
exercisable unless and until a specified portion of the initial term loan is
actually funded by the lenders.
3
Durham Capital Corporation acted as our advisor in connection with the
Guggenheim credit facility. As noted above, in partial compensation for its
services, we issued Durham Capital a warrant to purchase 77,143 shares of our
common stock. This warrant has a term of 10 years and is exercisable at price of
$1.88 per share, subject to adjustment for certain dilutive issuances. A portion
of this warrant will not become exercisable unless and until a specified portion
of the initial term loan is actually funded by the lenders.
Each of the lenders under the Guggenheim credit facility and Durham
Capital Corporation represented to us that such party was an "accredited
investor" within the meaning of Rule 501of Regulation D under the Securities Act
of 1933, and that such investor was receiving the warrants for investment and
not in connection with a distribution thereof. The issuance and sale of these
warrants was exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule
506 thereunder as a transaction not involving any public offering.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
None.
(b) Pro forma Financial Information.
None.
(c) Exhibits.
99.1 Press Release dated June 20, 2006, published by
Tarrant Apparel Group.
4
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: June 21, 2006 By: /S/ CORAZON REYES
--------------------------------------
Corazon Reyes, Chief Financial Officer
5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.1 Press Release dated June 20, 2006, published by Tarrant
Apparel Group.
6