EXHIBIT 99.2
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made as of this ___
day of October 2003, by and among TARRANT APPAREL GROUP, a California
corporation (the "Company"), and the investor identified on the signature page
to this Agreement (the "Investor").
W I T N E S S E T H:
WHEREAS, the Investor desires to subscribe for, purchase and acquire
from the Company and the Company desires to sell and issue to the Investor the
number of shares (the "Shares") of the Company's Series A Convertible Preferred
Stock, no par value (the "Preferred Stock"), set forth on the signature page of
this Agreement, upon the terms and conditions and subject to the provisions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual premises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement, the Investor subscribes for and agrees to purchase
and acquire from the Company and the Company agrees to sell and issue to the
Investor the Shares, in the manner set forth in SECTION 2 hereof, at the
purchase price set forth on the signature page of this Agreement.
2. TERMS OF PURCHASE AND SALE OF THE SHARES. The closing of the
transactions contemplated hereby (the "Closing") shall take place on or before
the fifth full business day after the Notice Date (as such term is defined in
the Placement Agent Agreement dated October 13, 2003 (the "Placement Agent
Agreement"), between the Company and Xxxxxxx Xxxxxx Xxxxxx Inc. (the "Placement
Agent")), at the offices of the Placement Agent, or at such other time and place
as the Company and the Placement Agent may agree upon. Contemporaneously with
the delivery of this Agreement, the Investor shall deliver to Sterling Bank (the
"Escrow Agent") the Purchase Price by wire transfer of immediately available
funds pursuant to wire transfer instructions given to the Investor by the
Company. At the Closing, the Escrow Agent shall deliver to the Company the
Purchase Price by wire transfer of immediately available funds pursuant to wire
transfer instructions given to the Escrow Agent by the Company, and the Company
shall deliver to the Investor a certificate, registered in the name of the
Investor, representing the Shares. Notwithstanding the foregoing, the
obligations of the Company and the Investor hereunder are subject to the
Company's receipt of aggregate subscriptions for a minimum of $30,400,000 in
aggregate proceeds for shares of Common Stock on or prior October 31, 2003 (or
such earlier closing date as may be agreed by the Company and the Placement
Agent), which date may be extended by the Company and the Placement Agent
pursuant to the terms of the Placement Agent Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce the Investor to enter into this Agreement, the Company represents and
warrants to the Investor the following:
(a) AUTHORITY. 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 execute, deliver and perform this Agreement 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 stockholders of
the issuance of the Conversion Shares upon the conversion of the
Shares, as required under Nasdaq Marketplace Rule 4350 ("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.
(b) ENFORCEABILITY. The execution, delivery, and
performance of this Agreement by the Company have been duly authorized
by all requisite corporate action. This Agreement has been duly
executed and delivered by the Company, and, upon its execution by the
Investor, shall constitute the legal, valid, and binding obligation of
the Company, enforceable in accordance with its terms, except to the
extent that its enforceability is limited by bankruptcy, insolvency,
reorganization, or other laws relating to or affecting the enforcement
of creditors' rights generally and by general principles of equity.
(c) NO VIOLATIONS. The execution, delivery, and
performance of this Agreement by the Company do not and will not
violate or conflict with any provision of the Company's Restated
Articles of Incorporation or Bylaws and 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 (except such consents as have
been obtained as of the date hereof), or result in the creation of any
lien, charge or encumbrance upon any property or assets of the Company
pursuant to, any material 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.
(d) CAPITALIZATION. The authorized capital stock of the
Company consists of: 35,000,000 shares of Common Stock, of which
18,765,425 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, none of which were issued and outstanding on August
12, 2003. As of September 30, 2003, the Company has outstanding options
to purchase 8,748,487 shares of Common Stock. Upon issuance in
accordance with the terms of this Agreement against payment of the
Purchase Price therefore, the Shares will be duly and validly issued,
fully paid, and nonassessable with no personal liability attaching to
the ownership thereof and free and clear of all liens
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imposed by or through the Company, and, assuming the accuracy of the
representations and warranties of the Investor and all other purchasers
of shares of Preferred Stock in the offering contemplated by the
Placement Agent Agreement, will be issued in accordance with a valid
exemption from the registration or qualification provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and any
applicable state securities laws (the "State Acts"). The Conversion
Shares have been duly authorized, and upon issuance of the Conversion
Shares upon proper conversion of the Shares, in accordance with the
terms thereof, the Conversion Shares will be validly issued, fully
paid, and non-assessable.
(e) EXCHANGE ACT FILING. During the twelve (12) calendar
months immediately preceding the date of this Agreement, all reports
and statements required to be filed by the Company with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder,
have been timely filed. 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.
(f) COMPANY FINANCIAL STATEMENTS. The audited financial
statements, together with the related notes of the Company at December
31, 2002 and December 31, 2001, and for the years then ended, included
in the Company's Annual Report of 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 (provided that the unaudited
financial statements are subject to normal year-end audit adjustments
and lack footnotes and other presentation items). 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.
(g) NO MATERIAL LIABILITIES. Except for liabilities or
obligations not individually in excess of $1,000,000, and as set forth
on Schedule 3(g), since 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 as June 30, 2003, and there has not been any material adverse
change, or to the actual knowledge
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of the Company, any development involving a prospective material
adverse change, in the condition (financial or otherwise), business,
prospects, 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.
(h) NO DISPUTES AGAINST COMPANY. Except as disclosed in
the Exchange Act Documents or set forth set forth on Schedule 3(h),
there is no material pending or, to the knowledge of 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, (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.
(i) APPROVALS. Other than (A) Nasdaq Approval with
respect to the issuance of the Conversion Shares and stockholder
approval of 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 of
Determination of Preferences, Rights and Limitations of the Series A
Preferred Stock, 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
Registration Rights Agreement (as hereinafter defined), (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, governmental body, agency,
or official 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.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. In order to
induce the Company to enter into this Agreement, the Investor represents and
warrants to the Company the following:
(a) AUTHORITY. If a corporation, partnership, limited
partnership, limited liability company, or other form of entity, the
Investor is duly organized or formed, as the case may be, validly
existing, and in good standing under the laws of its jurisdiction of
organization or formation, as the case may be. The Investor has all
requisite individual or entity right, power, and authority to execute,
deliver, and perform this Agreement.
(b) ENFORCEABILITY. The execution, delivery, and
performance of this Agreement by the Investor have been duly authorized
by all requisite partnership or corporate action, as the case may be.
This Agreement has been duly executed and delivered by the Investor,
and, upon its execution by the Company, shall constitute the
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legal, valid, and binding obligation of the Investor, enforceable in
accordance with its terms, except to the extent that its enforceability
is limited by bankruptcy, insolvency, reorganization, moratorium, or
other laws relating to or affecting the enforcement of creditors'
rights generally and by general principles of equity.
(c) NO VIOLATIONS. The execution, delivery, and
performance of this Agreement by the Investor 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 or assets of the
Investor pursuant to, any material instrument or agreement to which the
Investor is a party or by which the Investor or its properties may be
bound or affected, and, do not or will not violate or conflict with any
provision of the articles of incorporation or bylaws, partnership
agreement, operating agreement, trust agreement, or similar
organizational or governing document of the Investor, as applicable.
(d) KNOWLEDGE OF INVESTMENT AND ITS RISKS. The Investor
has knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of Investor's investment in
the Shares. The Investor understands that an investment in the Company
represents a high degree of risk and there is no assurance that the
Company's business or operations will be successful. The Investor has
considered carefully the risks attendant to an investment in the
Company, and that, as a consequence of such risks, the Investor could
lose Investor's entire investment in the Company.
(e) INVESTMENT INTENT. The Investor hereby represents and
warrants that (i) the Shares are being acquired for investment for the
Investor's own account, and not as a nominee or agent and not with a
view to the resale or distribution of all or any part of the Shares,
and the Investor has no present intention of selling, granting any
participation in, or otherwise distributing any of the Shares within
the meaning of the Securities Act, (ii) the Shares are being acquired
in the ordinary course of the Investor's business, and (iii) the
Investor does not have any contracts, understandings, agreements, or
arrangements, directly or indirectly, with any person and/or entity to
distribute, sell, transfer, or grant participations to such person
and/or entity with respect to, any of the Shares. The Investor is not
purchasing the Shares as a result of any advertisement, article, notice
or other communication regarding the Shares published in any newspaper,
magazine or similar media or broadcast over television or radio or
presented at any seminar or any other general solicitation or general
advertisement.
(f) INVESTOR STATUS. The Investor is an "Accredited
Investor" as that term is defined by Rule 501 of Regulation D
promulgated under the Securities Act and the information provided by
the Investor in the Investor's Questionnaire, a copy of which is
attached hereto as Exhibit A, is truthful, accurate, and complete. The
Investor is not, and is not required to be, registered as a
broker-dealer under Section 15 of the
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Exchange Act, and the Investor is not an "affiliate" of a broker-dealer
registered under Section 15 of the Exchange Act.
(g) DISCLOSURE. The Investor has reviewed information
provided by the Company in connection with the decision to purchase the
Shares, consisting of the Company's publicly available filings with the
Securities and Exchange Commission and the information contained
therein. The Company has provided the Investor with all the information
that the Investor has requested in connection with the decision to
purchase the Shares. The Investor further represents that the Investor
has had an opportunity to ask questions and receive answers from the
Company regarding the business, properties, prospects, and financial
condition of the Company. To the Investor's knowledge, the Company has
not disclosed any material non-public information to the Investor. All
such questions have been answered to the full satisfaction of the
Investor.
(h) NO REGISTRATION. The Investor understands that
Investor may be required to bear the economic risk of Investor's
investment in the Company for an indefinite period of time. The
Investor further understands that (i) neither the offering nor the sale
of the Shares has been registered under the Securities Act or any
applicable State Acts in reliance upon exemptions from the registration
requirements of such laws, (ii) the Shares and the Conversion Shares
must be held by he, she or it indefinitely unless the sale or transfer
thereof is subsequently registered under the Securities Act and any
applicable State Acts, or an exemption from such registration
requirements is available, (iii) except as set forth in the
Registration Rights Agreement between the Company and the Investor, the
Company is under no obligation to register any of the Shares or the
Conversion Shares on the Investor's behalf or to assist the Investor in
complying with any exemption from registration, and (iv) the Company
will rely upon the representations and warranties made by the Investor
in this Subscription Agreement in order to establish such exemptions
from the registration requirements of the Securities Act and any
applicable State Acts.
(i) TRANSFER RESTRICTIONS. The Investor will not transfer
any of the Shares or the Conversion Shares unless such transfer is
registered or exempt from registration under the Securities Act and
such State Acts, and, if requested by the Company in the case of an
exempt transaction, the Investor has furnished an opinion of counsel
reasonably satisfactory to the Company that such transfer is so exempt.
The Investor understands and agrees that (i) the certificates
evidencing the Shares and the Conversion Shares will bear appropriate
legends indicating such transfer restrictions placed upon the Shares
and the Conversion Shares, (ii) the Company shall have no obligation to
honor transfers of any of the Shares or the Conversion Shares in
violation of such transfer restrictions, and (iii) the Company shall be
entitled to instruct any transfer agent or agents for the securities of
the Company to refuse to honor such transfers.
(j) PRINCIPAL ADDRESS. The Investor's principal
residence, if an individual, or principal executive office, if an
entity, is set forth on the signature page of this Subscription
Agreement.
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(k) INDEPENDENT NATURE OF INVESTOR'S OBLIGATIONS AND
RIGHTS. The obligations of the Investor under this Agreement, the
Registration Rights Agreement, and any other documents delivered in
connection herewith and therewith (collectively, the "Transaction
Documents") are several and not joint with the obligations of any other
purchaser of Shares, and the Investor shall not be responsible in any
way for the performance of the obligations of any other purchaser of
Shares under any Transaction Document. The decision of the Investor to
purchase Shares pursuant to the Transaction Documents has been made by
the Investor Purchaser independently of any other purchaser of Shares.
Nothing contained herein or in any Transaction Document, and no action
taken by any purchaser of Shares pursuant thereto, shall be deemed to
constitute such purchasers as a partnership, an association, a joint
venture, or any other kind of entity, or create a presumption that the
purchasers of Shares are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by
the Transaction Document. The Investor acknowledges that no other
purchaser of Shares has acted as agent for the Investor in connection
with making its investment hereunder and that no other purchaser of
Shares will be acting as agent of the Investor in connection with
monitoring its investment in the Shares or enforcing its rights under
the Transaction Documents. The Investor shall be entitled to
independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other
purchaser of Shares to be joined as an additional party in any
proceeding for such purpose.
5. PROSPECTUS DELIVERY REQUIREMENT. The Investor hereby covenants
with the Company not to make any sale of the Shares or the Conversion Shares
without complying with the provisions hereof and of the Registration Rights
Agreement, and without effectively causing the prospectus delivery requirement
under the Securities Act to be satisfied (unless the Investor is selling such
Shares or the Conversion Shares in a transaction not subject to the prospectus
delivery requirement).
6. SHAREHOLDER APPROVAL. (a) Unless previously prepared and
filed, simultaneously with the Closing, the Company agrees that it shall prepare
and file with the SEC a preliminary proxy statement (as amended and
supplemented, the "Proxy Statement") in connection with the meeting of its
stockholders (the "Stockholders Meeting"). At the Stockholders Meeting the
Company will seek to obtain stockholder approval ("Stockholder 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
SEC and its staff, and, to the extent permitted by law, to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC staff. The
Investor shall cooperate with the Company is preparation of the Proxy Statement
or any amendment or supplement thereto and shall furnish the Company with all
information required to be included therein with respect to the Investor, this
subscription, and this offering.
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(b) Without limiting the generality of the foregoing, the Investor
shall correct as promptly as practicable any information provided by it to be
used specifically in the Proxy Statement, if required by applicable law, that
shall have become false or misleading in any material respect. The Company shall
take all reasonable steps necessary to file with the SEC and have declared
effective or cleared by the SEC 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 stockholders of the Company, in each case to
the extent required by applicable law.
(c) As a condition to Closing the Placement Agent shall have
entered into a Voting Agreement with beneficial owners of at least 51% of the
issued and outstanding shares of Common Stock of the Company pursuant to which
such owners agree to vote such shares at the Stockholders Meeting in favor of
the proposals set forth in paragraph (a) above.
(d) The Company represents and warrants to the Investor that (i)
the vote of a majority of the outstanding shares of Common Stock of the Company
represented and entitled to vote at the Stockholders Meeting will be required to
approve the issuance of the Conversion Shares and (ii) the vote of a majority of
the outstanding shares of Common Stock of the Company will be required to
approve the increase in the authorized shares of Common Stock of the Company
from 35,000,000 to 100,000,000 shares.
(e) The Investor covenants and agrees that the Investor will,
within 15 business days following the date the Company obtains Stockholder
Approval, elect to convert any Shares not previously converted into Conversion
Shares.
7. FURTHER ASSURANCES. The parties hereto will, upon reasonable
request, execute and deliver all such further assignments, endorsements and
other documents as may be necessary in order to perfect the purchase by the
Investor of the Shares.
8. REGISTRATION RIGHTS AGREEMENT; POWER OF ATTORNEY. The Investor
agrees to be bound by the terms of and hereby executes the Registration Rights
Agreement among the Company and the purchasers of the Shares (the "Registration
Rights Agreement"). By signing below, the Investor irrevocably constitutes and
appoints the Placement Agent as his, her, or its true and lawful agent and
attorney-in-fact with full power of substitution and full power and authority in
the Investor's name, place, and stead to execute and deliver the Registration
Rights Agreement and to take such actions as may be necessary or appropriate to
carry out the terms of the Registration Rights Agreement. The power of attorney
hereby granted will be deemed coupled with an interest, will be irrevocable, and
will survive and not be affected by the Investor's subsequent death, incapacity,
dissolution, insolvency, or termination or any delivery by the Investor of an
assignment in whole or in part of the Shares or the Conversion Shares. The
Placement Agent may exercise the foregoing power of attorney either by signing
separately or jointly as attorney-in-fact for each or all of the subscribers in
the offering of the Shares by the Company or be a single signature of the
Placement Agent acting as attorney-in-fact for all of them. The Company may rely
and act upon any writing believed in good faith to be signed by the Placement
Agent or any authorized representative of the Placement Agent,
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and may assume that all actions of the Placement Agent and any authorized
representative of the Placement Agent have been duly authorized by the Investor.
9. ENTIRE AGREEMENT; NO ORAL MODIFICATION. This Agreement
contains the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
with respect thereto and may not be amended or modified except in a writing
signed by both of the parties hereto.
10. BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors and assigns; however, nothing in this Agreement, expressed or
implied, is intended to confer on any other person other than the parties
hereto, or their respective heirs, successors or assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
12. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the United States of
America and the State of California, both substantive and remedial. 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 Texas or in the United States District
Court for the Southern District of Texas and, by its execution and delivery of
this agreement, each party to this Agreement accepts the jurisdiction of such
courts.
13. PREVAILING PARTIES. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party shall be entitled to receive
and the nonprevailing party shall pay upon demand reasonable attorneys' fees in
addition to any other remedy.
14. NOTICES. All communication hereunder shall be in writing and,
if sent to you shall be mailed, delivered, telegraphed or sent by facsimile or
electronic mail, and confirmed to an Investor at the address set forth on the
signature page of this Agreement, or if sent to the Company, shall be mailed,
delivered, telegraphed or sent by facsimile or electronic mail and confirmed to
the Company at 0000 Xxxx Xxxxxxxxxx Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000,
Attention: Chief Financial Officer, facsimile number (000) 000-0000, electronic
mail "xxxxxxx.xxxx@xxxx.xxx."
15. HEADINGS. The section headings herein are included for
convenience only and are not to be deemed a part of this Agreement.
[SIGNATURE ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
TARRANT APPAREL GROUP, a California corporation
By:
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Name: Xxxxxxx Xxxx
Its: Chief Financial Officer
INVESTOR
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By:
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Print Name and Title
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Principal Residence or Executive Office
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IRS Tax Identification No.
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Telephone Number
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Fax Number
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E-mail Address
________________ X $38.00 = ______________
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Number of Shares Price per Share Purchase Price
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