NEW YORK — Tarrant Apparel Group has closed on its offering of 850,000 shares of nonvoting series A convertible preferred stock at $38 a share.

The Los Angeles-based firm said the shares were sold to institutional and individual accredited investors. The offering, managed by Houston-based investment bank Sanders Morris Harris, allows for up to 1 million preferred shares to be sold. Tarrant said it expects a second and final closing to occur within the next several days.

In connection with the equity financing, Tarrant said it will hold a special shareholder meeting in early December seeking approval of conversion of each share of preferred stock to 10 shares of common stock. Tarrant said shareholders, including management, hold 53 percent of the company’s outstanding voting securities and have agreed to vote their shares in favor of the conversion at the special meeting.

As reported, the company has an exclusive distribution agreement with Federated Department Stores for American Rag Cie and with Wet Seal for No Jeans. Tarrant also manufactures Seven 7 jeanswear exclusively for Express.

Separately, Tarrant has leased its twill mill in Tlaxcala, Mexico, and its denim and twill mill in Ajalpan, Mexico. The agreements are for six years at an annual rent of $11 million. The firm entered into the leases with Kamel Nacif Borge, a beneficial owner of more than 10 percent of Tarrant common stock. In a separate agreement with Kamel Nacif Borge, his affiliates will manage the apparel firm’s operations at its remaining Mexican facilities. The management services agreement also runs for 6 years.

Gerard Guez, chairman and chief executive officer, said the funding and reorganization moves “will support the growth of our private label, trading company model that fueled profits in the years prior to our Mexico manufacturing initiative” and “allow us to maximize growth opportunities that would otherwise be left in incubation.”

The company provided 2004 guidance with income between $10 million and $12 million after depreciation expense of $15 million on sales of between $370 million and $395 million.

Shares of Tarrant closed down 5 cents, or 1.08 percent, at $4.60 in Nasdaq trading Monday.

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