UNITED STATES
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): March 21, 2007
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
On March 21, 2007, our wholly-owned subsidiary, Tarrant Luxembourg
S.a.r.l., entered into a letter agreement (the "AGREEMENT") with Solticio, S.A.
de C.V. ("SOLTICIO"), Inmobiliaria Cuadros, S.A. de C.V. ("INMOBILIARIA"), and
Acabados y Cortes Textiles, S.A. de C.V. ("ACOTEX" and together with Solticio
and Inmobiliaria, the "SELLERS"), and Tavex Algodonera, S.A. ("TAVEX").
Solticio and Acotex are indebted to Tarrant Luxembourg in the amount of
approximately $40 million (the "SELLER INDEBTEDNESS"), which Seller Indebtedness
was incurred by the Sellers upon their purchase from certain of our affiliates
of our manufacturing facilities and equipment in Mexico in November 2004. The
Seller Indebtedness is evidenced by a series of promissory notes (the "SELLER
NOTES") and is secured by a lien on the real property and equipment sold to the
Sellers (the "COLLATERAL"). During the third quarter of 2006, we evaluated the
recoverability of the Seller Notes and recorded a loss on the notes in an amount
equal to the outstanding balance less the value of the Collateral securing the
notes. The loss was estimated to be approximately $27.1 million, resulting in a
net notes receivable balance at December 31, 2006 of approximately $14 million.
Pursuant to the Agreement, Tavex has the right and option (but not the
obligation), for a period of 120 days following the date of the Agreement, to
pay to Tarrant Luxembourg an aggregate of U.S. $20 million in cash and
promissory notes, whereupon, among other things:
(a) Tarrant Luxembourg will terminate the Seller Notes and
release the Sellers from any further obligations thereunder, and
terminate and release all liens on the Collateral;
(b) Tarrant Luxembourg and the Sellers will terminate all
other executory obligations among the parties, including any obligation
of ours to purchase fabric from the Sellers; and
(c) Tarrant Luxembourg would agree to purchase from Tavex at
least U.S. $2.5 million of fabric during each of the first and second
years following Tavex's exercise of the option.
The U.S. $20 million payment by Tavex upon exercise of the option would
be comprised of the following:
(a) U.S. $2.5 million in cash, payable concurrently upon
exercise of the option;
(b) U.S. $8.5 million of unsecured promissory notes delivered
concurrently upon exercise of the option, of which $2.5 million would
be payable six months following closing, $3 million would be payable
twelve months following closing, and $3 million would be payable
eighteen months following closing; and
(c) U.S. $9.0 million of promissory notes delivered
concurrently upon exercise of the option and guaranteed by a financial
institution acceptable to us, of which $4.5 million would be payable
twenty-four months following closing and $4.5 million would be payable
thirty months following closing.
Tavex is not obligated to exercise the option. During the 120-day
option period, we agreed that we would not seek to enforce the Seller Notes,
including by taking action with respect to the Collateral,
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nor would we enter into any agreement with a third party that would adversely
affect Tavex's rights under the Agreement.
The Sellers also agreed during the 120-day option period, to work
exclusively with Tavex in respect of the payment of the Seller Indebtedness and
the other transactions contemplated by the Agreement, and not to enter into any
agreement with any person other than Tavex with respect to the payment and/or
assignment of the Seller Indebtedness and the transactions contemplated by the
Agreement.
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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: March 23, 2007 By: /S/ CORAZON REYES
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Corazon Reyes, Chief Financial Officer
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