EXECUTION DRAFT
GUGGENHEIM CORPORATE FUNDING, LLC
000 XXXX 00XX XXXXXX 0XX XXXXX
XXX XXXX, XX 00000
June 16, 2006
Xxxxxx Xxxx
000 Xxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
000-000-0000
Xxxx Xxx
0000 Xxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
000-000-0000
LETTER AGREEMENT RELATING TO PRIVATE SALES
OF TARRANT APPAREL GROUP SECURITIES
Dear Xxxxxx and Xxxx:
In connection with and as a condition precedent to the execution of the
Credit Agreement, dated as of the date hereof (the "Credit Agreement"), by and
among Guggenheim Corporate Funding, LLC, a Delaware limited liability company,
Tarrant Apparel Group, a California corporation (the "Company"), and the other
parties thereto, including the undersigned Lenders set forth on the signature
pages hereto (the "Investors"), Xxxxxx Xxxx and Xxxx Xxx, who beneficially own
12,883,084 shares and 4,995,999 shares of common stock, no par value, of the
Company (the "Common Stock"), respectively (together with their spouses listed
on the signature pages hereto, the "Stockholders"), are entering into this
letter agreement (the "Letter Agreement") to induce the Investors to execute the
Credit Agreement and related documents and undertake the transactions
contemplated by the Credit Agreement and related documents. The undersigned
agree as follows:
1. RIGHT OF CO-SALE
(a) PROPOSED TRANSFER NOTICE. If at any time a Stockholder proposes ("Proposed
Transfer") to Transfer of any shares of Capital Stock (or any interest therein)
beneficially owned by such Stockholder or any Affiliate (other than the Company)
("Transfer Stock") to another person or entity ("Prospective Transferee"), then
such Stockholder shall as a precondition to such Proposed Transfer give the
Investors written notice of the Stockholder's intention to make the Transfer
(the "Transfer Notice"), which Transfer Notice shall include (i) a description
of the Transfer Stock, (ii) the name, address, phone number and identity of the
Prospective Transferee(s) and (iii) the consideration and the material terms and
conditions upon which the
Proposed Transfer is to be made. The Transfer Notice shall certify that the
Stockholder has received an offer from the Prospective Transferee(s) and in good
faith believes a binding agreement for the Proposed Transfer is obtainable on
the terms set forth in the Transfer Notice. The Transfer Notice shall also
include a copy of any written proposal, term sheet or letter of intent or other
agreement relating to the Proposed Transfer.
(b) EXERCISE OF RIGHT. The Investors shall have the right, but not the
obligation, to participate in such Proposed Transfer, and to transfer to the
Prospective Transferee on the same terms and conditions specified in the
Transfer Notice ("Right of Co-Sale") up to 33.33%, collectively, of the shares
of Capital Stock which are transferred or sold pursuant to the Proposed
Transfer. Each Investor who desires to exercise its Right of Co-Sale (called
herein an "electing Investor") must give the selling Stockholder written notice
to that effect within ten (10) business days after receipt of the Transfer
Notice from the selling Stockholder, upon which such Investor shall be deemed to
have effectively exercised the Right of Co-Sale. Any electing Investor
exercising its Right of Co-Sale may include in the Proposed Transfer all or any
part of such Investor's Capital Stock equal to the product obtained by
multiplying (i) the aggregate number of shares of Transfer Stock subject to the
Proposed Transfer by (ii) 33.33%, multiplied by (iii) a fraction calculated by
dividing the Capital Stock held by an Investor by the Capital Stock held by all
Investors, subject to adjustment pursuant to the next sentence. After the ten
(10) business day period, the Stockholder shall notify any electing Investors if
there are Investors which have not exercised their Right of Co-Sale, and the
electing Investors may elect within three (3) business days of such notice to
sell shares of Capital Stock in such non-electing Investor's place, pro rata
among electing Investors if there is more than one electing Investor. For
example, if 100,000 shares are sold pursuant to the Proposed Transfer, the
Investors collectively would have a right to sell 33,330 of those shares for
their account, and an electing Investor with 50% of the Capital Stock held by
Investors could sell 16,668 shares if each Investor exercised its Right of
Co-Sale and 33,330 shares if no other Investor exercised its Right of Co-Sale.
In the absence of timely notice by any Investor, the Stockholder may proceed
with the Proposed Transfer; if any Proposed Transfer is not consummated within
forty-five (45) calendar days after the date of the Transfer Notice by the
Investor, the Stockholders proposing the Proposed Transfer may not sell any
Transfer Stock unless they first comply in full with each provision of this
Section 1.
(c) EXEMPTED TRANSFERS AND OFFERINGS. Notwithstanding the foregoing or anything
to the contrary herein, the provisions of Section 1 shall not apply: (a) upon a
transfer of Transfer Stock by such Stockholder made for bona fide estate
planning purposes, either during his or her lifetime or on death by will or
intestacy to his or her spouse, child (natural or adopted), or any other direct
lineal descendant of such Stockholder (or his or her spouse) (all of the
foregoing collectively referred to as "family members"), or any custodian or
trustee of any trust, partnership or limited liability company for the benefit
of, or the ownership interests of which are owned wholly by, such Stockholder or
any such family members, provided that the Stockholder shall deliver prior
written notice to the Investor of such pledge, gift or transfer and such shares
of Transfer Stock shall at all times remain subject to the terms and
restrictions set forth in this Letter Agreement and such transferee shall, as a
condition to such issuance, deliver a counterpart to this Letter Agreement as
confirmation that such transferee shall be bound by all the terms and
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conditions of this Letter Agreement as a Stockholder (but only with respect to
the securities so transferred to the transferee), including the obligations of a
Stockholder with respect to Proposed Transfers of such Transfer Stock pursuant
to Section 1, and provided, further, that such transfer is made pursuant to a
transaction in which there is no consideration actually paid for such transfer;
(b) to the sale of any Transfer Stock to the public in an offering pursuant to
(i) an effective registration statement under the Securities Act of 1933, as
amended, or (ii) Rule 144 promulgated thereunder; (c) to the sale or sales of up
to 2,400,000 shares of Common Stock, in the aggregate, from Xxxxxx Xxxx to Xxxx
Xxx; (d) to the sale of any Transfer Stock in a transaction or series of related
transactions in which the Investors otherwise have the opportunity to
participate in the Proposed Transfer on the same terms and conditions and for
the same aggregate consideration per share as the Stockholders (e.g., pursuant
to an issuer or third party tender offer, or by operation of law in a merger or
other reorganization); and (e) to the grant of a lien on the Transfer Stock and
any pledge of the Transfer Stock in connection therewith made pursuant to a bona
fide loan transaction with full recourse to the Stockholder, and any sale or
sales of Transfer Stock upon foreclosure of any such security interest or any
security interest in existence as of the date hereof.
(d) DEFINITIONS. For purposes of this Letter Agreement:
"Affiliate" means, with respect to any person, any other person who or which,
directly or indirectly, controls, is controlled by or is under common control
with such person, including without limitation any partner, member, officer,
director or employee of such Investor, and any venture capital fund now or
hereafter existing which is controlled by or under common control with one or
more general partners or managing members of, or shares the same management
company with, such person.
"Capital Stock" means (a) shares of Common Stock and preferred stock (whether
now outstanding or hereafter issued in any context), (b) shares of Common Stock
issued or issuable upon conversion of preferred stock and (c) shares of Common
Stock issued or issuable upon exercise or conversion, as applicable, of stock
options, warrants or other convertible securities of the Company, in each case
now owned or subsequently acquired by any Stockholder or their respective
successors or permitted transferees or assigns.
"Transfer" means to effect or allow any sale, assignment, offer, pledge,
mortgage, hypothecation, encumbrance, disposition of or any other transfer or
encumbering of any Capital Stock.
2. EFFECT OF FAILURE TO COMPLY.
(a) TRANSFER VOID; EQUITABLE RELIEF. Any Proposed Transfer not made in
compliance with the requirements of this Letter Agreement shall be null and void
ab initio, shall not be recorded on the books of the Company or its transfer
agent and shall not be recognized by the Company. Each party hereto acknowledges
and agrees that any breach of this Letter Agreement would result in substantial
harm to the other parties hereto for which monetary damages alone could not
adequately compensate. Therefore, the parties hereto unconditionally and
irrevocably agree that
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any non-breaching party hereto shall be entitled to seek protective orders,
injunctive relief and other remedies available at law or in equity (including,
without limitation, seeking specific performance or the rescission of purchases,
sales and other Transfers of Transfer Stock not made in strict compliance with
this Letter Agreement).
(b) VIOLATION OF CO-SALE RIGHT. If any Stockholder purports to sell any Transfer
Stock in contravention of the Right of Co-Sale (a "Prohibited Transfer"), if an
Investor desires to exercise its Right of Co-Sale under Section 1 the Investor
may, in addition to such remedies as may be available by law, in equity or
hereunder, require such Stockholder to purchase from the Investor the type and
number of shares of Capital Stock that the Investor would have been entitled to
sell to the Prospective Transferee under Section 1 had the Prohibited Transfer
been effected pursuant to and in compliance with the terms of Section 1. The
sale will be made on the same terms and subject to the same conditions as would
have applied had the Stockholder not made the Prohibited Transfer, except that
the sale (including, without limitation, the delivery of the purchase price)
must be made within ninety (90) days after the Investor learns of the Prohibited
Transfer, as opposed to the timeframe proscribed in Section 1. Such Stockholder
shall also reimburse the Investor for any and all reasonable and documented
out-of-pocket fees and expenses, including reasonable legal fees and expenses,
incurred pursuant to the exercise or the attempted exercise of the Investor's
rights under Section 1.
3. GOVERNING LAW, ETC.
This Letter Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York.
This Letter Agreement sets forth the entire agreement between the parties with
respect to the matters addressed herein and supersedes all prior communications,
written or oral, with respect hereto.
This Letter Agreement may be executed in any number of counterparts, each of
which, when so executed, shall be deemed to be an original and all of which,
taken together, shall constitute one and the same Letter Agreement. Delivery of
an executed counterpart of a signature page to this Letter Agreement by fax
shall be as effective as delivery of an original executed counterpart of this
Letter Agreement.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
The terms and conditions of this Letter Agreement may only be modified in
writing by each of the Stockholders and Investors representing 75% of the
Capital Stock held by Investors. This provisions of Section 1 of this Letter
Agreement shall terminate upon the date that an Investor no longer holds any
Capital Stock of the Company.
Each Stockholder represents and warrants that such Stockholder is the sole legal
and beneficial owner of the shares of Common Stock listed in the first paragraph
of this Letter Agreement and
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that no other person or entity has any interest in such shares (other than a
community property interest as to which the holder thereof has acknowledged and
agreed in writing to the restrictions and obligations hereunder).
4. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
Each party hereto irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Letter Agreement or the transactions
contemplated by this letter agreement or the actions of the parties hereto or
any of their affiliates in the negotiation, performance or enforcement of this
Letter Agreement.
With respect to all matters relating to this letter agreement, each party
irrevocably (i) submits to the non-exclusive jurisdiction of any New York State
or Federal court sitting in the State of New York, County of New York, and any
appellate court from any thereof, (ii) agrees that all claims related hereto may
be heard and determined in such courts, (iii) waives, to the fullest extent they
may effectively do so, the defense of an inconvenient forum, (iv) agrees that a
final judgment of such courts shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law,
(v) waives any immunity from jurisdiction of any court or from any legal process
or setoff to which it or its properties or assets may be entitled and (vi)
consents to the service of any and all process with respect to all matters
relating to this letter agreement by any manner permitted by law.
5. NOTICES; ASSIGNMENT OF RIGHTS.
All notices and other communications given or made pursuant to this Letter
Agreement shall be in writing and shall be deemed effectively given and
received: (a) upon personal delivery to the party to be notified, (b) when sent
by confirmed electronic mail or facsimile if sent during normal business hours
of the recipient, and if not so confirmed, then on the next business day,
provided a copy is also delivered the next day by nationally recognized
overnight courier, or (c) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to the Investor or the Company at
their respective addresses set forth in, and with copies to counsel as provided
in, the Credit Agreement and to the Stockholders at the address set forth on the
first page hereof, or to such email address, facsimile number or address as
subsequently modified by written notice given in accordance with this Section 5.
The terms and conditions of this Letter Agreement shall inure to the benefit of
and be binding upon the respective successors of the Investor and to permitted
assigns of the parties. Investors may assign upon notice to the Company their
respective rights hereunder to transferees or assignees of Warrants and/or
Registrable Securities (as defined under the Registration Rights Agreement,
dated as of the date hereof). Except in connection with an assignment by the
Company by operation of law to the acquirer of the Company, the rights and
obligations of the Company hereunder may not be assigned under any
circumstances.
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[SIGNATURE PAGE FOLLOWS]
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Please indicate your acceptance of the provisions hereof by
countersigning below.
Very truly yours,
ORPHEUS HOLDINGS LLC
By: GUGGENHEIM INVESTMENT MANAGEMENT, LLC
as Manager
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Managing Director
NORTH AMERICAN COMPANY FOR LIFE AND
HEALTH INSURANCE
By: MIDLAND ADVISORS COMPANY as its Agent
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Managing Director
MIDLAND NATIONAL LIFE INSURANCE COMPANY
By: MIDLAND ADVISORS COMPANY as its Agent
By: /s/ Xxxxxxx Xxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxx
Title: Managing Director
[SIGNATURE PAGE TO CO-SALE RIGHTS LETTER AGREEMENT]
ACCEPTED AND AGREED:
XXXXXX XXXX
/s/ Xxxxxx Xxxx
------------------------------------
Stockholder's spouse
/s/ Xxxxxxxxxx Xxxx
------------------------------------
[SIGNATURE PAGE TO CO-SALE RIGHTS LETTER AGREEMENT]
XXXX XXX
/s/ Xxxx Xxx
------------------------------------
Stockholder's spouse
/s/ Xxxxxxxx Xxx
------------------------------------
[SIGNATURE PAGE TO CO-SALE RIGHTS LETTER AGREEMENT]
TARRANT APPAREL GROUP
By: /s/ Xxxxxx Xxxx
------------------------------------
Name: Xxxxxx Xxxx
Title: Chairman and Interim CEO
[SIGNATURE PAGE TO CO-SALE RIGHTS LETTER AGREEMENT]
