UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
| |||
| |||
| |||
| |||
|
Filed by the Registrantý | ||
|
Check the appropriate box: | |||
|
| Preliminary Proxy Statement | |
|
| Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
|
| Definitive Proxy Statement | |
|
| Definitive Additional Materials | |
|
| Soliciting Material Pursuant to §240.14a-12 |
| ||||
| ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
| No fee required. | |||
| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
| (1) | Title of each class of securities to which transaction applies: | ||
(2) |
| Aggregate number of securities to which transaction applies: | ||
(3) |
| Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) |
| Proposed maximum aggregate value of transaction: | ||
(5) |
| Total fee paid: | ||
o | ||||
|
| |||
| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
|
| Amount Previously Paid: | ||
(2) |
| Form, Schedule or Registration Statement No.: | ||
(3) | Filing Party: | |||
|
| |||
(4) | ||||
| Date Filed: | |||
| ||||
INNOVO GROUP INC.
5804 East SlausonJOE'S JEANS INC.
5901 South Eastern Avenue
Commerce, California 90040
(323) 837-3700
(323) 725-5516
April 26, 2005
September 23, 2008
Dear Stockholder:
You are cordially invited to attend the 20052008 annual meeting of stockholders of Innovo GroupJoe's Jeans Inc., or Innovo Group,Joe's, which will be held at the SofitelDoubletree Hotel, 8555 Beverly Boulevard,5757 Telegraph Road, Commerce, California 90040, (near Los Angeles, California 90048,California), on Thursday, June 9, 2005.November 6, 2008. The 20052008 annual meeting of stockholders will begin promptly at 10:9:00 a.m. local time.
The accompanying notice of annual meeting and proxy statement, which you are urged to read carefully, provides important information regarding the business to be conducted at the annual meeting.
Your Board of Directors recommends a vote “FOR” all of the director nominees and proposals.
You are requested to complete, date and sign the enclosed proxy card and promptly return it in the enclosed envelope, whether or not you plan to attend the annual meeting. If you do attend the meeting, you may vote in person even if you have submitted a proxy card. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED. If you hold your shares in “street name”"street name" (that is, through a broker, bank or other nominee), please review the instructions on the proxy forwarded by your broker, bank or other nominee regarding the option, if any, to vote on the Internet or by telephone. If you plan to attend the meeting in person, please remember to bring a form of personal identification with you and, if you are acting as a proxy for another stockholder, please bring written confirmation from the record owner that you are acting as a proxy.
On behalf of the Board of Directors, I thank you for your support and continued interest in Innovo Group.our company.
Sincerely,
Samuel J. Furrow
CHAIRMAN OF THE BOARD OF DIRECTORS
JOE'S JEANS INC.
| |
| |
| |
|
This notice of annual meeting and proxy statement and proxy are first being mailed on or about September 25, 2008 to our common stockholders.
INNOVO GROUP INC.
5804 East SlausonJOE'S JEANS INC.
5901 South Eastern Avenue
Commerce, California 90040
(323) 837-3700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, JUNE 9, 2005NOVEMBER 6, 2008
Time and Date |
| |
Place | The Doubletree Hotel, 5757 Telegraph Road, Commerce, California 90040 | |
|
| |
|
| |
(2)
| ||
(3) To transact such other business as may properly come before the annual meeting or any | ||
|
| |
Record Date |
| |
Proxy Voting | ||
|
|
ii
|
|
The Board of Directors unanimously recommends that you vote to:
|
| |
|
By Order of the Board of Directors, | ||
Samuel J. Furrow | ||
|
PAGE | ||
---|---|---|
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION | 1 | |
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING |
| 2 |
PROPOSAL 1—ELECTION OF DIRECTORS | 8 | |
| 14 | |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 15 | |
EXECUTIVE OFFICERS | 17 | |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION | 18 | |
COMPENSATION DISCUSSION AND ANALYSIS | 18 | |
COMPENSATION COMMITTEE REPORT | 29 | |
REPORT OF THE AUDIT COMMITTEE | 29 | |
RELATED PARTY TRANSACTIONS | 30 | |
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 33 | |
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 33 | |
OTHER BUSINESS TO BE TRANSACTED | 34 |
i
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to the financial condition, results of operations, cash flows, financing plans, business strategies, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters. Statements in this document that are not historical facts are identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933.
This notice of annual meeting When we use the words "anticipate," "estimate," "project," "intend," "expect," "plan," "believe," "should," "likely" and similar expressions, we are making forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and the other documents we incorporate by reference in this proxy are first being mailedstatement. We caution you not to our common
stockholdersplace undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or about May 2, 2005.circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
These forward-looking statements, including statements relating to future business prospects, revenues, working capital, liquidity, capital needs and income, wherever they occur in this proxy statement, are estimates reflecting our best judgment. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and those discussed from time to time in our Securities and Exchange Commission, or SEC, reports, including our annual report on Form 10-K, Amendment No. 1 on Form 10-K/A for the year ended November 30, 2007 filed with the SEC on February 28, 2008 and March 28, 2008, respectively. You should read and consider carefully the information about these and other risks set forth under the caption "Risk Factors" in such filings.
iii
QUESTIONS AND ANSWERS
ABOUT THE PROXY MATERIALS
AND THE ANNUAL MEETING
Although we encourage you to read the proxy statement in its entirety, we include these Questions"Questions and AnswersAnswers" to provide background information and brief answers to several questions that you may have about the proxy materials.materials in general.
(1) To elect eightseven directors to serve on the Board of Directors until the 20062009 annual meeting of stockholders or until their respective successors are elected and qualified;
(2) To consider and approve an amendment to the Fifth Amended and Restated Certificate of Incorporation, or Restated Certificate, to increase the number of authorized shares of common stock available for issuance by 40 million from 40 million to 80 million;
(3) To consider and approve an amendment to the 2004 Stock Incentive Plan, or the 2004 Stock Plan, to increase the number of authorized shares available for issuance under the 2004 Stock Plan by 3 million shares from 1,265,172 shares to 4,265,172 shares;
(4) To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 26, 2005.30, 2008.
(3) Such other business as may properly come before the annual meeting of stockholders or any adjournment or postponement thereof.
We will also consider any other business that properly comes before the annual meeting.
shares:
•“FOR” the approval of the amendment to the 2004 Stock Plan; and
•“FOR” the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 26, 2005.
30, 2008.
1
Common Stockholder of Record
If your shares are registered directly in your name with our transfer agent, North AmericanContinental Stock Transfer and Trust Company, you are considered with respect to those shares the common stockholder of record and these proxy materials are being sent directly to you by us. As the common stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the annual meeting. We have enclosed a proxy card for you to use.
Beneficial Owner
If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares of our common stock held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered with respect to those shares the common stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote and are also invited to attend the annual meeting. However, since you are not the common stockholder of record, you may not vote these shares in person at the annual meeting unless you obtain a legal proxy from the broker, bank, or nominee that holds your shares giving you the right to vote the shares at the annual meeting. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker or nominee regarding how to vote your shares. You may also be able to vote your shares by Internet or telephone as described below under “How"How can I vote my shares without attending the annual meeting?”"
2
common stockholder of record, you may vote by submitting a proxy. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, bank or nominee. For directions on how to vote, please refer to the instructions below and those included on your proxy card, or for shares held beneficially in street name, you may vote by submitting voting instructions to your broker, bank or nominee.
By Mail – —Our common stockholders of record may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-paid, pre-addressed envelope. Our common stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction card provided by their broker, bank or nominee and mailing them in the accompanying pre-addressed envelope.
By Internet – —Most of our common stockholders who hold shares beneficially in street name may vote by accessing the website specified on the voting instruction cards provided by their brokers, banks or nominees. Please check the voting instruction card for Internet voting availability.
By Telephone – —Most of our common stockholders who hold shares beneficially in street name may vote by phone by calling the number specified on the voting instruction cards provided by their brokers, banks or nominees. Please check the voting instruction card for telephone voting availability.
3
Broker non-votes are counted as present for the purposespurpose of determining the presenceexistence of a quorum.quorum at the annual meeting.
If you hold your shares through a broker, bank or other nominee and you do not provide your broker with specific voting instructions, your broker may vote your shares on routine matters, but not on non-routine matters. As a result, your broker may vote your shares without your instructions with respect to Proposal 1 (election of directors) and Proposal 2 (ratification of independent registered public accounting firm) because these matters are considered routine.
4
To further assist in the solicitation process, we may decide to hire The Altman Group, Inc. to solicit proxies by personal interviews, telephone, telegram or otherwise. In the event we decide to hire The Altman Group, Inc. to assist with the solicitation of proxies, we anticipate that we would be expected to pay The Altman Group, Inc. an initial fee of approximately $5,500, plus additional compensation for telephone solicitation and solicitations made by other means.
SEC, within four days after the annual meeting.
5
year’syear's annual meeting of stockholders or to nominate individuals to serve as directors?stockholders?
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, some stockholder proposals may be eligible for inclusion in our 20062009 proxy statement. Any such stockholder proposals must be submitted in writing to and received by the Corporate Secretary of Innovo GroupJoe's Jeans at 5804 East Slauson5901 South Eastern Avenue, Commerce, California 90040 no later than January 3, 2006.May 10, 2009. The submission of a stockholder proposal does not guarantee that it will be included in our proxy statement.
A stockholder may also submit a proposal for consideration outside of Rule 14a-8. Pursuant to Rule 14a-4(c)(1), a stockholder may submit a proposal for consideration at the annual meeting. Any such stockholder proposals to be considered at the annual meeting must be submitted in writing to and received by our Corporate Secretary no later than March 19, 2006.July 24, 2009 to be considered timely. The submission of a stockholder proposal does not guarantee that it will be presented at the annual meeting.
Our common stockholders interested in submitting a proposal are advised to contact knowledgeable legal counsel with regard to the detailed requirements of applicable federal securities laws and the our bylaws, as applicable.
A: UnderCorporate Secretary will receive the General Corporation Lawcorrespondence and forward it to the Chairman of the StateBoard or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, does not reasonably relate to us or our business, or is similarly inappropriate. The office of Delaware, youthe Corporate Secretary has authority to discard any inappropriate communications or to take other appropriate actions with respect to any inappropriate communications.
6
INNOVO GROUPJOE'S JEANS INC.
5804 EAST SLAUSON
5901 SOUTH EASTERN AVENUE
COMMERCE, CALIFORNIA 90040
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON THURSDAY, NOVEMBER 6, 2008
PROPOSAL 1
Our bylaws provide that our Board of Directors will consist of not less than three directors, with the exact number of directors (subject to such minimum and any range of size established by our common stockholders) to be determined by resolution of our Board of Directors. Currently, our Board of Directors has set the number of directors has been set at eight directors.seven. At our annual meeting, eightseven directors will be elected to serve until the 20062009 annual meeting of stockholders, which we expect to hold around mid-May to early-Junelate October of 2006.2009. Our Board of Directors’Directors' nominees for election are set forth below.
In connection with investments by Commerce Investment Group, LLC and other investors affiliated with two of our significant common stockholders, Hubert Guez and Paul Guez, or collectively, the Commerce Group, during August and October 2000, we entered into an investor rights agreement whereby Commerce Group has the right to nominate three individuals for election to our Board of Directors. Additionally, one of Commerce Group’s nominees, if elected, will have the right to serve on the each of the committees of our Board of Directors. At this time, Commerce Group has not nominated any person to serve as a member on our Board of Directors. Joseph Mizrachi, pursuant to investments made in October 2000, has the right to nominate one individual for election to our Board of Directors, with this individual having the right to serve on the committees of our Board of Directors committees if elected. Mr. Mizrachi, at this time, has not nominated any person to be elected as a member of our Board of Directors.
7
Name |
| Age |
| Position |
| Year |
Samuel J. (Sam) Furrow |
| 63 |
| Chairman of the Board of Directors |
| 1998 |
Samuel J. (Jay) Furrow, Jr. |
| 31 |
| Chief Executive Officer and Director |
| 1999 |
Marc B. Crossman |
| 33 |
| President, Chief Financial Officer and Director |
| 1999 |
Dean Factor(1)(2) |
| 40 |
| Director |
| 2004 |
Kelly Hoffman(3)(4) |
| 47 |
| Director |
| 2004 |
Suhail R. Rizvi(1)(2) |
| 39 |
| Director |
| 2003 |
Vincent Sanfilippo(1)(2)(3) |
| 39 |
| Director |
| 2003 |
Kent Savage(1)(3) |
| 43 |
| Director |
| 2003 |
Name | Age | Position | Year First Elected Director | ||||||
---|---|---|---|---|---|---|---|---|---|
Samuel J. (Sam) Furrow | 66 | Chairman of the Board of Directors | 1998 | ||||||
Marc B. Crossman | 36 | Chief Executive Officer, President, and Director | 1999 | ||||||
Joe Dahan | 40 | Creative Director and Director | 2007 | ||||||
Kelly Hoffman(1)(2)(3) | 50 | Director | 2004 | ||||||
Thomas O'Riordan(1)(2)(3) | 52 | Director | 2006 | ||||||
Suhail R. Rizvi(1)(2) | 42 | Director | 2003 | ||||||
Kent Savage(2)(3) | 46 | Director | 2003 |
(4) Mr. Hoffman served as a Member of the Compensation and Stock Option Committee during fiscal 2004 and resigned from this committee in early 2005.
Samuel J. (Sam) Furrow has served as Chairman of our Board of Directors since October 1998. Mr. Furrow became a member of our Board of Directors in April 1998 and served as our Chief Executive Officer from October 1998 until December 2000. Mr. Furrow also has been Chairman of the Board of Furrow Auction Company, a real estate and equipment sales company with its headquarters in Knoxville, Tennessee, since April 1968; Chairman of Furrow-Justice Machinery Corporation, a six-branch industrial and construction equipment dealer, since 1983; owner of Knoxville Motor Company-Mercedes Benz and Land Rover of Knoxville since December 1980 and July 1997, respectively. Mr. Furrow has been a Director of Southeastern Advertising Inc., an advertising agency, since April 1968; and a Director of Goody’s Family Clothing, Inc. (NASDAQ: GDYS), a publicly traded retail clothing chain, since 1995. Mr. Furrow received his undergraduate and J.D. degree from the University of Tennessee. Sam Furrow is the father of our former Chief Executive Officer and former Director, Samuel J. (Jay) Furrow, Jr.
Samuel J. (Jay) Furrow, Jr.Marc B. Crossman has served as our Chief Executive Officer since July 2002 and a member of our Board of Directors since January 1999. Prior to that, Mr. Furrow served as our President from December 2000 until July 2002, served as our Chief Operating Officer from April 1999 until March 2003, our Acting Chief Financial Officer from August 2000 until March 2003, and our Vice-President for Corporate Development and In-House Counsel from August 1998 until April 1999. Mr. Furrow currently serves on the Board of Directors of Digital Lifestyles Group, Inc. (DLFG.OB), a publicly traded manufacturer and distributor of personal computers and VTV: Varsity Television, Inc., a television company and network dedicated to teenagers. Mr. Furrow received his J.D. degree from Southern Methodist University School of
8
Law and his B.S. degree in Political Science from Vanderbilt University. Jay Furrow is the son of the Chairman of our Board of Directors, Samuel J. (Sam) Furrow.
Marc B. Crossman has served as our Chief Financial Officer since March 2003,2006, our President since September 2004 and a member of our Board of Directors since January 1999. Prior to joiningFrom March 2003 until August 2007, Mr. Crossman served as our company,Chief Financial Officer. From January 1999 until March 2003, Mr. Crossman served as a Vice President and Equity Analyst with J.P. Morgan Securities Inc., New York City, New York, fromYork. From September 1997 until January 1999, until March 2003. Prior to joining J.P. Morgan Securities, Inc., Mr. Crossman served as a Vice President and Equity Analyst with CIBC Oppenheimer Corporation from September 1997 until January 1999. Mr. Crossman also serves on the Board of Directors of Digital Lifestyles Group, Inc. (DLFG.OB), a publicly traded manufacturer and distributor of personal computers.Corporation. Mr. Crossman received his B.S. degree in Mathematics from Vanderbilt University.
Dean FactorJoe Dahan has served as athe president and head designer for our Joe's Jeans Subsidiary, Inc. since its formation in February 2001 and as our Creative Director and member of our Board of Directors since April 2004.October 2007. Mr. Factor has served asDahan is responsible for the Chairmandesign, development and marketing of Joe's products. From 1996 until 2001, Mr. Dahan was the head designer for Azteca Production International, Inc., or Azteca, where he was responsible for the design, development and merchandising of product lines developed by Azteca. Azteca, which is owned by two of our stockholders, is one of the Boardworld's largest manufacturers of Directorsdenim related products. From 1989 until 1996, Mr. Dahan was engaged in the design and Chief Executive Officerdevelopment of SBX Holding Company,apparel products for a company of which includes Smashbox Studioshe was an owner and Smashbox Cosmetics, since he founded the company in 1990. Prior to founding Smashbox Enterprises, Mr. Factor was a financial analyst and an inventory analyst with Eldon Industries from 1987 until 1989. Prior to that, Mr. Factor worked for Drexel Burnham Lambert from 1981 until 1983. Mr. Factor received his B.S. degree in Business Administration from American University and his M.B.A. from University of Southern California.operator.
Kelly Hoffman has served as a member of our Board of Directors since June 2004. Mr. Hoffman has served as Chairman of the Board of Directors and Chief Executive Officer of VTV: Varsity Television,Media Group Inc., a televisionnew media company and network dedicated to teenagers, since he founded the company in 1998. Prior to that,From 1991 until 1998, Mr. Hoffman owned AOCO Operating, a company that raised capital for the acquisition of property in Texas, Louisiana and New Mexico from 1991 until 1998.Mexico. From 1989 until 1991, Mr. Hoffman served in a similar position for Texakoma Financial, an oil and gas partnership that raised capital for acquisition of property in Texas, Louisiana and New Mexico. Prior to that, Mr. Hoffman served in various sales and marketing positions for PAZ Syndicate, a conglomerate based in Tel Aviv, Israel that owned diverse interests worldwide. Prior to that, Mr. Hoffman specialized in securing capital from investors for investment in various limited partnerships for the oil and gas industry for Paso Energy. Prior to that, Mr. Hoffman began his oil and gas career at Amoco Production Company in Texas in various positions. Mr. Hoffman attended Texas Tech University and majored in Business Administration.
Thomas O'Riordan has served as a member of our Board of Directors since April 2006. Since March 2007, Mr. O'Riordan has served as Chief Executive Officer of American Sporting Goods Corporation, a privately held manufacturer and retailer of athletic footwear with such brands as And1, Avia, Ryka, Yukon, Triple 5 Soul, NSS and Nevados. From 2004 to 2007, Mr. O'Riordan acted in an executive consulting and advisory capacity to the senior management team of Fila Holding Company, a publicly traded manufacturer and retailer of branded footwear, apparel and accessories, and to other investment advisors and funds in the retail and consumer products sector.
From 1999 to 2004, Mr. O'Riordan served in various executive management capacities with Fila Holding Company, ultimately serving as Chief Executive Officer from 2003 to 2004. From 1995 until 1998, Mr. O'Riordan served as Director of Operations of Adidas America, a publicly traded manufacturer and retailer of branded athletic footwear, apparel and accessories. From 1988 to 1995, Mr. O'Riordan was President of Tom O'Riordan & Associates, a sales and marketing company focused on the athletic footwear, apparel and sporting goods industries. Mr. O'Riordan began his career in sales for Brooks Shoe Company. Mr. O'Riordan received his B.S. degree in Marketing and Management from Rider University.
Suhail R. Rizvi has served as a member of our Board of Directors since April 2003. Since 2004, Mr. Rizvi has served as Chairmanfounder and Chief Investment Officer of the Board of Directors for the AG Holdings, a privately held company with investments in a diversified portfolio of manufacturing companies since January 2004Rizvi--Traverse Management LLC and Rizvi Interests, a privately held investment company since January 2000. In addition, Mr. Rizvi has served as the general partner of Rizvi Opportunistic Equity Fund LP, a $250 million dollar private equity fund since August 2004.other related funds. Mr. Rizvi has over 19twenty years of private equity investing experience for his own account and as a fiduciary for institutional investors. Since 1991,investors through various entities or funds as founder, principal or manager. Mr. Rizvi has made debtalso serves as Chairman of the Board of Directors of AG Holdings, a diversified investment company with interests in various manufacturing companies and equity investments inas a numbermember of manufacturingthe Board of Directors for International Creative Management, Inc. a global talent and technology oriented companies totaling in excess of $200 million.literary agency. Mr. Rizvi received his B.S. degree in Economics from the Wharton School of the University of Pennsylvania.Pennsylvania and sits on the Wharton Undergraduate Executive Board.
Vincent SanfilippoKent Savage has served as a member of our Board of Directors since July 2003. Since June 2006, Mr. Sanfilippo is the Chief Investment OfficerSavage has served as Founder and PrincipalCEO of Urdang Capital Management,Famecast, Inc., a real estate investment management firm with a portfolio of real estate investments valued at approximately $2 billion. Mr. Sanfilippo has been responsible for originating or overseeing the acquisition of approximately $3 billion of real estate assets during his 15 years with Urdang. Mr. Sanfilippo received his B.S. degree in Economics from the Wharton School of the University of Pennsylvania.
9
Kent Savage has served as a member of our Board of Directors since July 2003.privately held online entertainment property. From January 2004 until June 2005, Mr. Savage currently servesserved as Chief Executive Officer for Digital Lifestyles Group, Inc. (DLFG.OB)(DLFG.PK), a publicly traded manufacturer and distributor of personal computers. Prior to joining Digital Lifestyles, formerly Northgate Innovations, Inc., in January 2004,From September 2002 until February 2003, Mr. Savage served as co-founder, Chief Sales and Marketing Officer for TippingPoint Technologies (NASDAQ: TPTI) from September 2002. From February 1999 until February 2003. Prior to joining TippingPoint,August 2001, Mr. Savage served as co-founder, CEO and President for Netpliance, Inc., from From April 1998 until February 1999, until August 2001. Prior to joining Netpliance, Mr. Savage served as General Manager, Broadband for Cisco Systems Inc. Service Provider Line of Business fromBusiness. From July 1996 until April 1998, until February 1999. Prior to joining Cisco, Mr. Savage served as Vice President, Sales and Marketing for NetSpeed, Inc., from July 1996 until April 1998. Mr. Savage received his B.S. degree in Business from Oklahoma State University, attended University of Virginia’sVirginia's Executive Leadership Program, and received his M.B.A. degree from Southern Methodist University.
2004?2007?
stockholders.
Audit Committee. The Audit Committee is currently comprised of Messrs. Factor, Rizvi, SanfilippoHoffman, and Savage.O'Riordan. Mr. Rizvi serves as Chairman of the Audit Committee. The Audit Committee met or acted through written consent a total of sevenfive times in fiscal 2004.2007.
The Audit Committee has been established to: (a) assist our Board of Directors in its oversight responsibilities regarding (1) the integrity of our financial statements, (2) our compliance with legal and regulatory requirements, (3) the independent accountant’saccountant's qualifications and independence and (4) the performance of the our internal audit function; (b) prepare the report required by the SEC for inclusion in the our annual proxy statement;(c) retain and terminate our independent accountant; (d) approve audit and non-audit services to be performed by the independent accountant; and (e) perform such other functions as our Board of Directors may from time to time assign to the Audit Committee. The Audit Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003 and filed with our revised proxy statement for our last annual meeting on April 29, 2004. Currently, all Audit Committee members are “independent”"independent" under NASDAQ listing standards and as such term is defined in the
10
rules and regulations of the SEC, and Mr. Rizvi has also been designated to be an “audit"audit committee financial expert”expert" as such term is defined in the rules and regulations of the SEC. A copy of the Audit Committee charter can be found on our website at www.innovogroup.comwww.joesjeans.com under our Investor Relations heading.
Compensation and Stock Option CommitteeCommittee.. The Currently, the Compensation and Stock Option Committee is currently comprised of Messrs. Factor, RizviSavage, Hoffman, O'Riordan and Sanfilippo. In early 2005,Rizvi. Mr. Hoffman resigned as a member of the Compensation and Stock Option Committee and was replaced by Mr. Sanfilippo. Mr. RizviSavage serves as Chairman of the Compensation and Stock Option Committee. The Compensation and Stock Option Committee met or acted through written consent a total of five times in fiscal 2004.
2007.
The principal responsibilities of the Compensation and Stock Option Committee are to (a) assist our Board of Directors in ensuring that a proper system of long-term and short-term compensation is in place to provide performance-oriented incentives to management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the company; (b) discharge our Board of Director’sDirector's responsibilities relating to compensation of our executive officers; (c) evaluate our Chief Executive Officer and set his remuneration package; (d) prepare an annual report on executive compensation for inclusion in our annual proxy statement; (e) make recommendations to our Board of Directors with respect to incentive-compensation plans and equity-based plans; and (f) perform such other functions as our Board of Directors may from time to time assign. The Compensation and Stock Option Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003. Currently, all Compensation and Stock Option Committee members are “independent”"independent" under NASDAQ listing standards. A copy of the Compensation and Stock Option Committee charter can be found on our website at www.innovogroup.comwww.joesjeans.com under our Investor Relations heading.
Nominating and Governance CommitteeCommittee.. The Nominating and Governance Committee is currently comprised of Messrs. Hoffman, SanfilippoO'Riordan, and Savage. Mr. SanfilippoHoffman serves as Chairman of the Nominating and Governance Committee. The Nominating and Governance Committee met a total of two timesone time in fiscal 20042007 and met on April 8, 2005prior to the filing of this proxy statement to propose athe above slate of nominees for election to our Board of Directors by our common stockholders atfor this annual meeting.
The principal responsibilities of the Nominating and Governance Committee are to (a) assist our Board of Directors in determining the desired experience, mix of skills and other qualities to assure appropriate Board of Directors composition, taking into account the current Board members and the specific needs of the company and the Board of Directors; (b) identifyingidentify highly qualified individuals meeting those criteria to serve on our Board of Directors; (c) proposingpropose to our Board of
Directors a slate of nominees for election by our common stockholders at the annual meeting of stockholders and prospective director candidates in the event of the resignation, death, removal or retirement of directors or a change in our Board of Directors composition requirements; (d) developingdevelop plans regarding the size and composition of our Board of Directors and its committees; (e) reviewingreview management succession plans; (f) reviewingreview the Corporate Governance Guidelines of our Boardof Directors at least annually and monitoringmonitor and makingmake recommendations with respect to the corporate governance principles applicable to the company; and (g) perform such other functions as the Board of Directors may from time to time assign to the Nominating and Governance Committee.
The Nominating and Governance Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003. Currently, all Nominating and Governance Committee members are “independent”"independent" under NASDAQ listing standards. There is no specific procedure outlined in the charter for the Nominating and Governance Committee to consider nominees to our Board of Directors that are recommended by our common stockholders, but such nominees will be considered in accordance with the principal responsibilities of the Nominating and Governance Committee, our bylaws and all applicable rules and regulations relating to such nominations by our common stockholders. Please see our
11
“Questions "Questions and Answers”Answers" beginning on page 6two for deadlines to propose actions for consideration at next year’syear's annual meeting of stockholders or to nominate individuals to serve as directors. The Nominating and Governance Committee has the responsibility for developing criteria for the selection of new directors and nominees for vacancies. The members of the Nominating and Governance Committee have the discretion to choose candidates that have the desired experience, mix of skills and other qualities to assure appropriate composition while taking into account the current members and the specific needs of Innovo Groupour company and our Board of Directors. To date, no more specific criteria has been developed than that set forth in the charter. Furthermore, we have not had a common stockholder propose a nominee to our Board of Directors nor have we paid any third party a fee to assist us in the process of identifying or evaluating candidates for our Board of Directors. A copy of the Nominating and Governance Committee charter can be found on our website at www.innovogroup.comwww.joesjeans.com under our Investor Relations heading.
For fiscal 2004
from May 2006 to October 2007 (a period of 17 months) without any form of a grantcash or other equity compensation.
Name | Fees Earned or Paid in Cash | Stock Awards(1) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Sam Furrow | $ | — | $ | 127,200 | $ | 127,200 | ||||
Kent Savage | — | 127,200 | 127,200 | |||||||
Tom O'Riordan | — | 127,200 | 127,200 | |||||||
Suhail Rizvi | — | 127,200 | 127,200 | |||||||
Kelly Hoffman | 127,200 | — | 127,200 | |||||||
$ | 127,200 | $ | 508,800 | $ | 636,000 | |||||
Prior to fiscal 2004, pursuant to our former 2000 Director Stock Incentive Plan, each non-employee director received an option to buy common stock with an aggregate fair market value of $10,000 with an exercise price is set at 50% of the fair market value of the common stock on the date of grant. The discount was originally proposed to be in lieu of director fees. In addition to this stock option compensation, at the annual meeting of stockholders held on May 22, 2003, our Board of Directors voted to compensate all non-employee directors in the form of a cash payment at an annual rate of $12,500 for service as a member of our Board of Directors. In fiscal 2004, our Board of Directors elected not to compensate all non-employee directors in the form of a cash payment. Also, as a result of service as members of our Board of Directors for almost a full calendar year prior to receiving any form of compensation, Messrs. Savage and Sanfilippo received an additional grant of options to purchase up to 25,000 shares of our common stock at an exercise price of $1.58 per share. Members of our Board of Directors who are employees receive no additional compensation for service as members of our Board of Directors. Members of our Board of Directors who also serve on one or more committees of our Board of Directors do not receive any additional compensation for such service.
After this annual meeting of stockholders on June 9, 2005, our Board of Directors will meet to discuss compensation arrangements for members of our Board of Directors for service throughout fiscal 2005. We expect the compensation arrangements to be similar to those for fiscal 2004.
To date, there have been no waivers under our Code of Business Conduct and Ethics. We intend to disclose any amendments to our Code of Business Conduct and Ethics and any waiver granted from a provision of such Code on a Current Report on Form 8-K filed with the SEC within fivefour business days following such amendment or waiver or on our website at www.innovogroup.comwww.joesjeans.com within five business days following such amendment or waiver.the same time frame. The information contained or connected to our website is not incorporated by reference into this proxy statement and should not be considered a part of this or any other report that we file or furnish to the SEC.
12
PROPOSAL 2
APPROVAL OF AMENDMENT TO OUR FIFTH AMENDED AND RESTATED CERTIFICATEOF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES BY 40MILLION FROM 40 MILLION TO 80 MILLION
Our Board of Directors has approved and recommended the adoption of an amendment to our Fifth Amended and Restated Certificate of Incorporation,business, or Restated Certificate, to increase the number of authorized shares of common stock available for issuance by 40 million from 40 million to 80 million. We are asking our common stockholders to consider and approve the amendment to our Restated Certificate. Currently, we have 40 million shares of our common stock and 5 million shares of our preferred stock authorized for issuance. In the event of approval of this amendment, our authorized shares of common stock would be increased by 40 million to 80 million. Our authorized shares of preferred stock will remain the same. If this proposal is approved, the additional shares would be partsimilarly inappropriate. The office of the existing class of common stock and if and when issued, would have the same rights and privileges as the shares of common stock presently issued and outstanding. As of April 20, 2005, we had 31,837,810 shares of common stock outstanding.
Q:Why is the Board recommending this Proposal?
A: Our Board believes that this amendmentCorporate Secretary has authority to our Restated Certificate is necessary to provide us with a sufficient reserve of shares of common stock to provide us with flexibility to issue more shares of common stock for corporate purposes that may be identified from time to time, such as financings, acquisitions, strategic business relationships, stock dividends, including stock splits in the form of stock dividends,discard any inappropriate communications or issuances under our benefit plans. Having additional authorized shares of common stock available for issuance in the future would give us greater flexibility and allow shares of common stock to be issued without the expense and delay of a stockholders’ meeting, except as may be required by applicable law or regulations. We have no present commitment, plan or intent to issue any of the additional shares of common stock provided for in this Proposal 2. The increase in authorized shares of our common stock also could be used to make a change in control of us more difficult. Though we have no current plan or intention to issue such shares as a takeover defense, the additional authorized shares of common stock could be used to discourage persons from attempting to gain control of us or make more difficult the removal of management. Management is not currently aware of any specific effort to obtain control of us by means of a merger, tender offer, solicitation in opposition of management, or otherwise. If this Proposal 2 is approved, the additional authorized shares of common stock, as well, as the currently authorized but unissued shares of common stock (but for those shares which are reserved for issuance), would be immediately available in the future for such corporate purposes as the Board deems advisable from time to time without further action by our common stockholders, unless such action is required by applicable law or any stock exchange or securities market upon which our shares may be listed.
It should be noted that, subject to the limitations as discussed above, all of the types of Board action described in the preceding paragraph can currently be taken and the power of the Board to take suchother appropriate actions would not be enhanced by the passage of this Proposal 2, although this Proposal 2 would increase the number of shares that are subject to such action.
13
Q:How will the Restated Certificate be amended?
A: If this Proposal 2 is approved and the amendment to the Restated Certificate becomes effective, the first paragraph of Article Fourth of the Restated Certificate, which sets forth our presently authorized capital stock, will be amended to read as set forth below.
“FOURTH. (a) The total number of shares of capital stock that the Corporation shall be authorized to issue is 85 million divided into two classes as follows: (i) 80 million (80,000,000) shares of common stock having a par value of $0.10 per share (“Common Stock”), and (ii) five million (5,000,000) shares of serial preferred stock in series having a par value of $0.10 per share (“Preferred Stock”).”
Q:What is the vote required to approve Proposal 2?
A: The affirmative “FOR” vote of a majority of our shares of common stock issued and outstanding is required to approve the amendment to the Restated Certificate.
Q:When would the amendment become effective?
A: If approved by our common stockholders, the proposed amendment to our Restated Certificate will become effective upon the filing of a Certificate of Amendment with the Secretary of State of the State of Delaware, which will occur as soon as reasonably practicable after approval.
Q:How does the Board of Directors recommend I vote?
A: Our Board of Directors unanimously recommends a vote “FOR” the approval of the amendment to our Restated Certificate.
14
PROPOSAL 3
APPROVAL OF AMENDMENT TO 2004 STOCK INCENTIVE PLAN
On April 7, 2004, our Board of Directors adopted the 2004 Stock Incentive Plan, or the 2004 Stock Plan. Our common stockholders approved the 2004 Stock Plan at the annual meeting of stockholders on June 3, 2004. We are asking you to consider and approve an increase in the reservation of the total shares available for issuance thereunder by 3 million shares from 1,265,172 shares of common stock to 4,1265,172 shares of common stock.
Our 2004 Stock Plan provides for an award of options, whether nonqualified or incentive, restricted common stock, restricted common stock units, performance shares, performance share units, purchases, share awards, stock appreciation rights or other awards based on the value of our common stock. The 2004 Stock Plan also permits the Compensation and Stock Option Committee to grant certain awards, such as performance shares, contingent based upon pre-established performance goals to our executives and our subsidiaries. In order to qualify for deductibility under Section 162(m) of the Internal Revenue Code, or the Code, the 2004 Stock Plan, including, without limitation, the performance goals for determining performance awards set forth in the 2004 Stock Plan must be approved by our common stockholders.
Q:What is the vote required to approve Proposal 3?
A: The affirmative “FOR” vote of a majority of the shares present in person or represented by proxy at the annual meeting is required to approve the amendment to the 2004 Stock Plan.
Q:How does the Board of Directors recommend I vote?
A: Our Board of Directors unanimously recommends a vote “FOR” the approval of the amendment to the 2004 Stock Plan.
Q:Why is the Board recommending this Proposal?
A:Our Board has concluded that the adoption of the amendment to the 2004 Stock Plan is in our best interest and the interest of our common stockholders. Our Board believes that this amendment is necessary to provide us with a sufficient reserve of common stock for future awards of various types needed to attract, employ and retain employees, directors and consultants of outstanding ability.
Q:How will the 2004 Stock Plan be amended?
A: If approved by our common stockholders, the 2004 Stock Plan would be amended and restated to increase the total shares available for issuance under the 2004 Stock Plan by 3 million shares from 1,265,172 shares of common stock to 4,265,172 shares of common stock.
Q:When would the amendment become effective?
A: If approved by our common stockholders, the proposed amendment to our 2004 Stock Plan will become effective upon approval. As soon as reasonably practicable thereafter, we intend to file a registration statement covering the offering of the additional shares under the 2004 Stock Plan with the SEC pursuant to the Securities Act of 1933, as amended.
15
Q:What is a general description of the principal terms of the 2004 Stock Plan?
A: A general description of the principal terms of the 2004 Stock Plan is set forth below. However, this summary does not purport to be a complete description of all of the provisions of the 2004 Stock Plan, a copy of which is attached to this proxy statement as Attachment A and has been revised to reflect the proposed amendment to the total shares available for issuance under the 2004 Stock Plan.
General. The purpose of the 2004 Stock Plan is to enhance our ability to attract and retain officers, directors, employees and consultants of outstanding ability and to provide selected officers, employees, directors and consultants with an interest in us parallel to that of our common stockholders. The 2004 Stock Plan provides for the award of options, whether nonqualified or incentive, restricted common stock, restricted common stock units, performance shares, performance share units, purchases, share awards, stock appreciation rights or other awards based on the value of our common stock to our officers, employees, directors and consultants, as well as those officers, employees, directors and consultants of our subsidiaries, such as Innovo, Inc., Innovo Azteca Apparel, Inc. and Joe’s Jeans, Inc.
Effective Date. The 2004 Stock Plan became effective on June 3, 2004.
Number of Shares. Subject to adjustment for certain corporate events, the total number of shares of common stock which are available for the grant of awards under the 2004 Stock Plan cannot exceed 1,265,172 shares of common stock. If this Proposal 3 is approved, the total number of shares of common stock which are available for the grant of awards under the 2004 Stock Plan will be increased from 1,265,172 shares of common stock to 4,265,172 shares of common stock; provided, that, for purposes of this limitation, any common stock subject to an option which is canceled or expires without exercise will again become available for award under the 2004 Stock Plan. Upon forfeiture of awards in accordance with the provisions of the 2004 Stock Plan and the terms and conditions of the award, such shares will again be available for subsequent awards under the 2004 Stock Plan. Subject to adjustment, no employee will be granted, during any one (1) year period, options to purchase more than 1,250,000 shares of common stock, and the number of shares of common stock subject to any awards other than options or stock appreciation rights will not exceed 1,250,000 shares of common stock. Common stock available for issue or distribution under the 2004 Stock Plan will be authorized and unissued shares or shares reacquired by us in any manner.
Administration. The Compensation and Stock Option Committee of our Board of Directors will administer the 2004 Stock Plan. The Compensation and Stock Option Committee is currently comprised of Messrs. Rizvi, Factor and Sanfilippo. In early 2005, Mr. Hoffman resigned as a member of the Compensation and Stock Option Committee and was replaced by Mr. Sanfilippo. Mr. Rizvi is Chairman of the Compensation and Stock Option Committee. All of Messr. Rizvi, Factor and Sanfilippo are non-employee directors within the meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, and are also outside directors within the meaning of Section 162(m) of the Code. The Compensation and Stock Option Committee will (i) approve the selection of participants, (ii) determine the type of stock awards to be made to participants, (iii) determine the number of shares of common stock subject to awards, (iv) determine the terms and conditions of any awards granted there under (including, but not limited to, any restriction and forfeiture conditions on such awards) and (v) have the authority to interpret the 2004 Stock Plan, to establish, amend, and rescind any rules and regulations relating to the 2004 Stock Plan, to determine the terms and provisions of any agreements entered into there under, and to make all other determinations necessary or advisable for the administration of the 2004 Stock Plan.
Eligibility. Employees, officers, directors and consultants of us and our subsidiaries selected by the Compensation and Stock Option Committee are eligible to receive grants of awards under the 2004 Stock Plan.
16
Awards. Awards under the 2004 Stock Plan may consist of options, restricted common stock, restricted common stock units, performance shares, performance share units, stock purchases, share awards, stock appreciation rights or other awards based on the value of the common stock.
(1)Options. Both “nonqualified stock options”, or Nonqualified Stock Options, and “incentive stock options”, or ISOs, may be granted under the 2004 Stock Plan, which we will collectively refer to as Options. The terms of any such Option will be set forth in an option agreement and will be consistent with the following:
Exercise Price. The exercise price per share of the shares of our common stock to be purchased pursuant to any Option will be fixed by the Compensation and Stock Option Committee at the time such Option is granted. In general, in no event will the exercise price for ISOs be less than the fair market value of a share on the day on which the ISO is granted. The Compensation and Stock Option Committee may also reduce the Option price of any outstanding Option either through a direct amendment to such Option or through a cancellation of such Option and immediate grant of a new Option with a lower Option price or in any other manner it deems appropriate.
Option Term. Subject to termination, the duration of each Option will be determined by the Compensation and Stock Option Committee, but may not exceed 10 years from the date of grant; provided, however, that in the case of ISOs granted to 10% shareholders, the term of such Option will not exceed 5 years from the date of grant. In the event of a participant’s death (other than ISOs) Options that would otherwise remain exercisable following such death, will remain exercisable for one year following such death irrespective of the terms of the Option.
Vesting. An Option will vest and become exercisable at a rate determined by the Compensation and Stock Option Committee on the date of grant.
(2)Restricted Common Stock. The 2004 Stock Plan permits the Compensation and Stock Option Committee to award restricted common stock under the 2004 Stock Plan to eligible participants. The Compensation and Stock Option Committee may also award restricted common stock in the form of restricted common stock units having a value equal to an identical number of shares of common stock. Payment of restricted common stock units will be made in common stock or in cash or in a combination thereof (based upon the Fair Market Value (as defined in the 2004 Stock Plan) of the common stock on the day the restricted period expires).
(3)Performance Shares. Performance shares may be granted in the form of actual shares of common stock or common stock units having a value equal to an identical number of shares of common stock. The performance conditions and the length of the performance period will be determined by the Compensation and Stock Option Committee, but in no event may a performance period be less than twelve (12) months. The Compensation and Stock Option Committee will determine in its sole discretion whether performance shares granted in the form of common stock units will be paid in cash, common stock, or a combination of cash and common stock. Awards of performance shares to Covered Employee (as defined in the 2004 Stock Plan) will be subject to performance goals. Performance goals may be expressed in terms of one or more of the following business criteria: revenue, earnings before interest, taxes, depreciation and amortization, or EBITDA, funds from operations, funds from operations per share, operating income, pre or after tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, share price performance, improvements in our attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after tax). The Compensation and Stock Option Committee will establish the relevant performance conditions
17
within ninety (90) days after the commencement of the performance period (or such later date as may be required by Section 162(m) of the Code. A performance goal may be measured over a performance period on a periodic, annual, cumulative or average basis and may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships, or joint ventures. The maximum number of performance shares subject to any award to a Covered Employee is 1,250,000 for each twelve (12) months during the performance period (or, to the extent the award is paid in cash, the maximum dollar amount of any such award is the equivalent cash value, based on the fair market value of the common stock, of such number of shares of common stock on the last day of the performance period). An award of performance shares to a participant who is a Covered Employee will (unless the Compensation and Stock Option Committee determines otherwise) provide that in the event termination of continuous service prior to the end of the performance period for any reason, such award will be payable only if the applicable performance objectives are achieved and to the extent, if any, as the Compensation and Stock Option Committee will determine. The Compensation and Stock Option Committee may reduce or eliminate the amount of payment with respect to any award of performance shares notwithstanding the achievement of specified performance objective however, no adjustments will be made that would adversely impact a participant following a change in control.
No payments will be made with respect to any performance award unless and until the Compensation and Stock Option Committee certifies the achievement of the performance goals.
(4)Share Purchases. The Compensation and Stock Option Committee may authorize eligible individuals to purchase common stock at price equal to, below or above the fair market value of the common stock at the time of grant.
(5)Share Awards. Subject to such performance and employment conditions as the Compensation and Stock Option Committee may determine, awards of common stock or awards based on the value of the common stock may be granted either alone or in addition to other awards granted under the 2004 Stock Plan.
(6)Stock Appreciation Rights.The Compensation and Stock Option Committee may, either alone or in connection with the grant of another award grant stock appreciation rights, the terms of which will be set forth in an agreement.
Change in Control. Unless otherwise provided in an award agreement, upon the occurrence of a “Change in Control” (as defined in the 2004 Stock Plan), all options and stock appreciation rights will automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any common stock awards, restricted common stock, restricted common stock units, performance shares or performance share units granted will automatically lapse.
Adjustments. The 2004 Stock Plan provides that in the event of certain corporate events or changes in the common stock, awards and the number of shares under the 2004 Stock Plan may be adjusted to reflect such event.
Deferrals. The Compensation and Stock Option Committee will be authorized to establish procedures pursuant to which the payment of any award may be deferred.
Amendment and Termination. The 2004 Stock Plan will expire on June 3, 2014 (except as to awards outstanding on that date).inappropriate communications. The Board may terminate or amend the 2004 Stock Plan in any respect at any time, exceptof Directors believes that no amendment will be made without our common stockholder approval, if such approval is necessarynot having a formal process to complycommunicate with any applicable law, regulation or stock exchange rule and, no amendment will be
18
made that would adversely affect the rights of a participant without such participant’s written consent, except as provided under Adjustments.
Q:What are the federal income tax consequences of options granted under the 2004 Stock Plan under the federal tax laws currently in effect?
The following is a summary of the material federal tax consequences of receiving options in the 2004 Stock Plan and is based upon an analysis of the present provisions of the Code and the regulations promulgated thereunder, all of which are subjectthem does not make them less accessible to change. A participant may also be subject to state and local taxes, the consequences of which are not discussed herein, in the jurisdiction in which he works and/or resides. This summary is for general information purposes only and is not tax advice.
Section 162(m) Limitation. Subject to a limited number of exceptions, Section 162(m) of the Code denies a deduction to a publicly held corporation for payments of remuneration to certain employees to the extent the employee’s remuneration for the taxable year exceeds $1,000,000. For this purpose, remuneration attributable to stock options is included within the $1,000,000 limitation. However, to the extent that certain procedural requirements are met (e.g., the 2004 Stock Plan is approved by our common stockholders grants are made by the Compensationand
any inquiries to date have been satisfactorily processed and Stock Option Committee, the exercise price is equalcommunicated to the fair market value ofappropriate members. Each communication must contain a clear notation indicating that it is a "Stockholder—Board Communication" or "Stockholder—Director Communication," and each communication must identify the underlying shares upon grant, etc.), gain from the exercise of stock options should not be subject to the $1,000,000 limitation. We have attempted to structure the 2004 Stock Plan in such a manner that the remuneration attributable to the stock options will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the Internal Revenue Service or an opinion of counsel regarding this issue.
Non-Qualified Stock Options. An individual receiving non-qualified stock options should not recognize taxable income at the time of grant. A participant should generally recognize ordinary compensation income in an amount equal to the excess, if any, in the fair market value of the option shares on exercise of the non-qualified stock options over the exercise price thereof. In general, subject to the limitations set forth in Section 162(m) and discussed above, we are entitled to deduct from our taxable income the amount that the participant is required to include in ordinary income at the time of such inclusion.
Incentive Stock Options. An individual granted an incentive stock option will not generally recognize taxable income at the time of grant or, subject to certain conditions, at the time of exercise, although he or she may be subject to alternative minimum tax. In general, if a disqualifying disposition should occur (i.e., the shares acquired upon exercise of the option are disposed of within the later of two years from the date of grant or one year from the date of exercise), a participant will generally recognize ordinary compensation income in the year of disposition in an amount equal to the excess, if any, of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on disposition), over the exercise price thereof. We are not entitled to any deduction on account of the grant of the incentive stock options or the participant’s exercise of the option to acquire common stock. However, in the event of a subsequent disqualifying disposition of such shares of common stock acquired pursuant to the exercise of an incentive stock option under circumstances resulting in taxable compensation to the participant, subject to the limitations set forth in Section 162(m) and discussed above, in general, we should be entitled to a tax deduction equal to the amount treated as taxable compensation to the participant.
Q:What would the new 2004 Stock Plan benefits have been if the 2004 Stock Plan had been in effect for the fiscal 2004 year?
A:The amounts payable under the 2004 Stock Plan for 2004 which may be received by each of (a) our executive officers named in the Summary Compensation Table herein; (b) our executive officersauthor as a group; and (c) our employees who are not executive officers as a group, are not currently determinable.stockholder.
19
RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of Directors has appointed Ernst & Young LLP, or E&Y, as our independent registered public accounting firm for the fiscal year ending November 26, 2005,30, 2008, subject to ratification by our common stockholders at our annual meeting. Representatives of E&Y will be present at the annual meeting and will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
4?2?
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of April 20, 2005September 22, 2008 concerning beneficial ownership of common stock held by (1) each person or entity known by us to beneficially own more than 5% of our outstanding common stock, (2) each of our directors and nominees for election as a director, (3) each of our named executive officers, and (4) all of our directors and executive officers as a group. The information as to beneficial ownership has been furnished by our respective common stockholders, directors and executive officers, and, unless otherwise indicated, each of our common stockholders has sole voting and investment power with respect to the shares beneficially owned. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities.
Unless indicated below, to our knowledge, the persons and entities named in the table below have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Pursuant to the rules of the SEC, certain shares of our common stock that a beneficial owner set forth in this table has a right to acquire within 60 days of the date hereof pursuant(pursuant to the exercise of options or warrants for the purchase of shares of common stockstock) are deemed to be outstanding for the purpose of computing the percentage ownership of that owner, but are not deemed outstanding for the purpose of computing percentage ownership of any other beneficial owner shown in the table. Percentages are calculated based on 31,837,81059,826,974 shares outstanding as of April 20, 2005.September 22, 2008. The address for the officers and directors is our corporate office located at 5804 East Slauson5901 South Eastern Avenue, Commerce, California, 90040.
Beneficial Owner |
| Number of Shares |
| Percentage of |
|
Samuel J. (Jay) Furrow, Jr. |
| 1,574,104 | (1) | 4.94 | % |
|
|
|
|
|
|
Marc B. Crossman |
| 1,237,015 | (2) | 3.89 | % |
|
|
|
|
|
|
Shane Whalen |
| 50,000 | (3) |
| *% |
|
|
|
|
|
|
Richard A. Quiroga |
| 41,667 | (4) |
| *% |
|
|
|
|
|
|
Samuel J. (Sam) Furrow |
| 3,195,105 | (5) | 10.04 | % |
|
|
|
|
|
|
Dean Factor |
| 55,000 | (6) |
| *% |
|
|
|
|
|
|
Kelly Hoffman |
| 45,000 | (7) |
| *% |
21
Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Common Stock | |||||
---|---|---|---|---|---|---|---|
Marc B. Crossman | 1,947,864 | (1) | 3.18 | % | |||
Hamish Sandhu | 103,887 | (2) | * | ||||
Joseph M. Dahan | 14,418,708 | (3) | 24.02 | % | |||
Samuel J. (Sam) Furrow | 3,410,105 | (4) | 5.68 | % | |||
Kelly Hoffman | 50,000 | (5) | * | ||||
Tom O'Riordan | 155,000 | (6) | * | ||||
Suhail R. Rizvi | 267,692 | (7) | * | ||||
Kent Savage | 285,250 | (8) | * | ||||
BSS-Joe's Investors, LLC and Barry S. Sternlicht | 5,482,325 | (9) | 9.13 | % | |||
Windsong DB, LLC | 5,540,925 | (10) | 9.23 | % | |||
All directors and executive officers, as a group | 20,638,506 | (1)(2)(3)(4) (5)(6)(7)(8) | 33.11 | % |
Suhail R. Rizvi |
| 62,692 | (8) |
| *% |
|
|
|
|
|
|
Vincent Sanfilippo |
| 75,000 | (9) |
| *% |
|
|
|
|
|
|
Kent Savage |
| 80,250 | (10) |
| *% |
|
|
|
|
|
|
Azteca Production International, Inc. |
| 3,442,508 | (11) | 10.81 | % |
|
|
|
|
|
|
Doweling, Joseph L. III |
| 1,593,600 | (12) | 5.01 | % |
|
|
|
|
|
|
Guez, Hubert |
| 1,837,287 | (13) | 5.77 | % |
|
|
|
|
|
|
Guez, Paul |
| 2,921,312 | (14) | 9.18 | % |
|
|
|
|
|
|
Innavation LLC, Seymour Braun, Yardworth Mortgage Corp., |
| 2,547,820 | (15) | 8.00 | % |
|
|
|
|
|
|
S.A.C. Capital Advisors, LLC, S.A.C. Capital Management, |
| 2,491,173 | (16) | 7.82 | % |
|
|
|
|
|
|
Stadia Capital, LLC, Enrique Abeyta, John J. Fleming, and |
| 1,597, 945 | (17) | 5.02 | % |
|
|
|
|
|
|
All directors and executive officers, as a group |
| 6,415,833 |
| 20.15 | % |
22
Mr. Crossman disclaims beneficial ownership of shares held for the accounts in trust for his minor children.
Mr. Dahan pledged under a security and pledge agreement 600,000 shares held in his personal account.
(4)
(5)
(6) Includes (i) 10,000 shares held for the personal account of Dean Factor; (ii) 45,000 shares issuable upon the exercise of currently exercisable (or exercisable within 60 days) options held for Mr. Factor’s personal account.
(7) Includes 45,000 shares issuable upon the exercise of currently exercisable (or exercisable within 60 days) options held for Mr. Hoffman’s personal account.
(8) Includes (i) 10,000 shares held for the account of R-2 Group Holdings LLC, a limited liability company which Mr. Rizvi serves as managing member; and (ii) 52,692(iii) 177,692 shares issuable upon the exercise of currently exercisable (or exercisable within 60 days) options held for Mr. Rizvi’sRizvi's personal account. Mr. Rizvi disclaims beneficial ownership of such shares held for the account of R-2 Group Holdings LLC except to the extent of his pecuniary interest in such shares.
(9)
(10) Includes (i) 10,250 shares held for the account of Savage Interests LP, a limited partnership which Mr. Savage and his spouse are limited partners; (ii) 70,000and (iii) 195,000 shares issuable upon the exercise of currently exercisable (or exercisable within 60 days) options held for Mr. Savage’sSavage's personal account. Mr. Savage disclaims beneficial ownership of such shares held for the account of Savage Interests LP except to the extent of his pecuniary interest in such shares.
(11)
23
held for the account of Azteca, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr. Hubert Guez exercises sole voting and investment control.control over these shares. This information is based upon a Schedule 13D/A filed with the SEC on April 15, 2005.
(12)July 10, 2007.
(13) Includes (i) 23,900 shares held for the personal account of Hubert Guez; (ii) 300,000 shares issuable upon exercise of currently exercisable warrants held for the account of Commerce Investment Group LLC, or Commerce, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr. Hubert Guez exercisesmembership interest, has sole voting andor investment control; and (iii) 1,513,387 shares held for the account of Azteca, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr. Hubert Guez exercises sole voting and investment control.control over these shares. This information is based upon a Schedule 13D/A filed with the SEC on April 15, 2005.
(14) Includes (i) 1,929,121 shares held for the account of Azteca, an entity jointly owned by Mr. Hubert Guez and Mr. Paul Guez and as to which such shares Mr. Paul Guez exercises sole voting and investment control; (ii) 149,101 shares held for the account of S.H.D. Investments, LLC, a California limited liability company for which Mr. Paul Guez serves as President and as to which such shares Mr. Paul Guez exercises sole voting and investment control; and (iii) 843,090 shares held for the account of Integrated Apparel Resources, LLC, a California limited liability company jointly owned by Mr. Hubert Guez and Mr. Paul Guez, as to which such shares Mr. Paul Guez exercises sole voting and investment control. This information is based upon a Schedule 13D/A filed with the SEC on April 15, 2005.
(15) Innavation, LLC, a Delaware limited liability company, is owned 85% by Yardworth Mortgage Corp., or Yardworth, a corporation organized under the laws of Aruba. The beneficial owner of Yardworth is Praha Trust, a trust organized under the laws of Canada. As sole trustee of Praha Trust, Mr. Seymour Braun has the right to vote all shares owned by Innavation, LLC. This information is based upon a Form 4 filed with the SEC on February 9, 2004.
(16) This information is based upon a Schedule 13G/A filed with the SEC on December 31, 2004. S.A.C. Capital Advisors LLC, S.A.C. Capital Management, LLC and Mr. Cohen may be deemed to beneficially own 2,491,173 shares and Sigma Capital Management and Mr. Cohen may be deemed to beneficially own 25,000 shares. Each of S.A.C. Capital Advisors, S.A.C. Capital Management, Sigma Capital Management and Mr. Cohen disclaim beneficial ownership of any of the securities covered in its Schedule 13G/A.
(17) This information is based upon a Schedule 13G filed with the SEC March 18, 2005. The shares reported are held in the accounts of various private investment funds, the investments of which are managed by Stadia Capital LLC or its affiliate, of which Enrique J. Abeyta, John J. Fleming and Richard J. Swift are managing members.
24
EXECUTIVE OFFICERS
Executive Officers
Our executive officers and their agesage and positionsposition as of April 20, 2005September 22, 2008 are as follows:
Name | Age | Position | |||||||
---|---|---|---|---|---|---|---|---|---|
|
|
| |||||||
Marc B. Crossman | 36 | Chief Executive Officer, President and Director | |||||||
Hamish Sandhu |
|
| Chief Financial Officer | ||||||
|
| 40 |
| ||||||
|
|
|
Samuel J. (Jay) Furrow, Jr.Marc B. Crossman has served as our Chief Executive Officer since July 2002 and a member of our Board of Directors since January 1999. Prior to that, Mr. Furrow served as our President from December 2000 until July 2002, served as our Chief Operating Officer from April 1999 until March 2003, our Acting Chief Financial Officer from August 2000 until March 2003, and our Vice-President for Corporate Development and In-House Counsel from August 1998 until April 1999. Mr. Furrow currently serves on the Board of Directors of Digital Lifestyles Group, Inc. (DLFG.OB), a publicly traded manufacturer and distributor of personal computers and VTV: Varsity Television, Inc., a television company and network dedicated to teenagers. Mr. Furrow received his J.D. degree from Southern Methodist University School of Law and his B.S. degree in Political Science from Vanderbilt University. Jay Furrow is the son of the Chairman of our Board of Directors, Samuel J. (Sam) Furrow.
Marc B. Crossman has served as our Chief Financial Officer since March 2003,2006, our President since September 2004 and a member of our Board of Directors since January 1999. Prior to joiningFrom March 2003 until August 2007, Mr. Crossman also served as our company,Chief Financial Officer. From January 1999 until March 2003, Mr. Crossman served as a Vice President and Equity Analyst with J.P. Morgan Securities Inc., New York City, New York, fromYork. From September 1997 until January 1999, until March 2003. Prior to joining J.P. Morgan Securities, Inc., Mr. Crossman served as a Vice President and Equity Analyst with CIBC Oppenheimer Corporation from September 1997 until January 1999. Mr. Crossman also serves on the Board of Directors of Digital Lifestyles Group, Inc. (DLFG.OB), a publicly traded manufacturer and distributor of personal computers.Corporation. Mr. Crossman received his B.S. degree in Mathematics from Vanderbilt University.
Shane WhalenHamish Sandhu has served as our Chief OperatingFinancial Officer since April 2003.August 2007. From January 2006 until August 2007, Mr. Sandhu was Chief Financial Officer of California Tan, Inc., a consumer products company manufacturing and marketing lotion and equipment to the indoor tanning industry. From September 2001 until December 2005, Mr. Sandhu was Chief Financial Officer of Ancra International LLC, a manufacturer of aircraft cargo systems and trucking restraint products. Mr. Sandhu began his career at Deloitte & Touche LLP. Prior to that, Mr. Whalen served as our Vice President ofSandhu held various Chief Financial and Corporate Development from October 2002 until April 2003. Prior to joining our company,Controller positions at other manufacturing and distribution based companies. Mr. Whalen was an independent business consultant from November 2000 until September 2002. Prior to that, Mr. Whalen served as Chief Operating Officer for Next Generation, LLC, an entertainment production company, from August 1998 until November 2000. Prior to that, Mr. Whalen served as Manager of Financial Services & Transportation for Accenture Consulting from January 1994 until August 1998. Mr. Whalen received hisSandhu has a B.A. degree in Economics and Accounting from Vanderbilt University.
Richard A. Quiroga has served as our Vice President of Finance since August 2004. Prior to joining our company, Mr. Quiroga served from 1996 until 2003 as Vice President and Corporate Controller for Earthlink, Inc. in Pasadena, California, a national internet service provider. Prior to joining Earthlink in 1996, Mr. Quiroga served as the Chief Financial Officer at Thomas Safran and Associates, a Los Angeles based housing developer and property management company. Prior to that, Mr. Quiroga served as the Chief Financial Officer for two other companies after beginning his public accounting career as an auditor for PriceWaterhouseCoopers, formerly Coopers & Lybrand. Mr. Quiroga received his B.S. degree in accounting from Loyola MarymountAustralian National University and isholds a licensed certified public accountant.Certified Public Accountant's license.
25
Other Significant Employees
Joe Dahanhas served as the Presidentpresident and head designer for our Joe’sJoe's Jeans Subsidiary, Inc. subsidiary, or Joe’s, since its formation in February 2001.2001 and as our Creative Director and member of our Board of Directors since October 2007. Mr. Dahan is responsible for the design, development and marketing of Joe’sJoe's products. Prior to Joe’s,From 1996 until 2001, Mr. Dahan was the head designer for Azteca Production International, Inc., or Azteca, where he was responsible for the design, development and merchandising of product lines developed by Azteca from 1996 until 2001.Azteca. Azteca, which is owned by two of our significant common stockholders, is one of the world’sworld's largest manufacturers of denim related products. Prior to his employment with Azteca,From 1989 until 1996, Mr. Dahan was engaged in the design and development of apparel products for a company of which he was an owner and operator from 1989 until 1996.operator.
Other Significant Employees
Michel SoultanianElena Pickett (age 45) has served as our Production ManagerSenior Vice President of Sales since August 2003. Mr. Soultanian initially joined our company in connection with our acquisition of the Blue Concept division from Azteca, as discussed in “Related Party Transactions” in this proxy statement. While at Azteca, Mr. SoultanianSeptember 2005. From 2000 to 2005, Ms. Pickett served as the production managerDirector of Sales for wholesale apparel sales for Lucky Brand Jeans®, a division of Liz Claiborne Inc. From 1995 to 2000, Ms. Pickett served as the Sales Manager for the West Coast region for Just For Wraps, a junior apparel company based in Los Angeles. Prior to that, Ms. Pickett also held various sales positions at Pepe Clothing including West Coast Sales Manager for women's denim.
Director Compensation
Historically, our non-employee Directors have been compensated for service through an equity grant. Our Directors are not compensated in any other manner, however, they are reimbursed for travel and business expenses associated with attending our annual meeting if the Director's schedule permits such attendance. Attendance in person is not required, but we try to accommodate schedules in
planning the date. In fiscal 2007, all directors, except Mr. Hoffman, attended our annual meeting in person. Consistent with its past practices, on October 15, 2007 and October 17, 2007, the Compensation Committee of the Board approved grants of restricted stock in the amount of 80,000 shares to each non-employee Director: Sam Furrow, Kent Savage, Tom O'Riordan, and Suhail Rizvi. The restricted stock vests on a monthly basis over the course of 12 months beginning November 15, 2007. In lieu of a restricted stock grant, Kelly Hoffman elected to be compensated through a cash retainer in the amount of $127,200 paid monthly over the next twelve months which is equivalent to the value of the restricted stock awards. This amount was determined based upon the peer group analysis and because the non-employee Directors had served from May 2006 to October 2007 (a period of 17 months) without any form of cash or other equity compensation.
Name | Fees Earned or Paid in Cash | Stock Awards(1) | Total | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Sam Furrow | $ | — | $ | 127,200 | $ | 127,200 | ||||
Kent Savage | — | 127,200 | 127,200 | |||||||
Tom O'Riordan | — | 127,200 | 127,200 | |||||||
Suhail Rizvi | — | 127,200 | 127,200 | |||||||
Kelly Hoffman | 127,200 | — | 127,200 | |||||||
$ | 127,200 | $ | 508,800 | $ | 636,000 | |||||
Compensation Committee Interlocks and Insider Participation
During fiscal 2004,2007, the Compensation and Stock Option Committee of our Board of Directors, or Compensation Committee, was comprised of Messrs. Rizvi, FactorSavage, Hoffman, O'Riordan and Hoffman.Rizvi. The Compensation and Stock Option Committee is responsible for determining the salaries and incentive compensation of our executive officers and for providing recommendations for the salaries and incentive compensation of all other employees and consultants. The Compensation and Stock Option Committee also administers our benefit plans, including the 2004 Stock Incentive Plan. Mr. RizviSavage serves as Chairman of the Compensation and Stock Option Committee. Neither Mr. Rizvi, Mr. Factor nor Mr. HoffmanNone of our past or current members of the Compensation Committee has served as an executive officer or employee of Innovo Group. However, beginning in January of 2004, Mr. Furrow, oneus or any of our executive officers and asubsidiaries. One member of our BoardCompensation Committee, Mr. Rizvi, entered into a transaction with us to sublease, at our current market rate, certain previously leased office space for an entity that he owns. See "Related Parties—9000 Sunset Office Space Sublease" for a further discussion of Directors, became a memberthis transaction.
Compensation Discussion and Analysis
This discussion and analysis will focus on the following: (1) the objectives of the Boardexecutive compensation policies and practices, (2) the objectives that the compensation program is designed to reward; (3) each element of Directorscompensation, (4) the rationale for VTV,each element of compensation, (5) the methodologies utilized by us in determining the amounts to pay for each element, and (6) how an element of compensation and our rationale for each element fit together within our overall compensation objectives. This discussion relates to our Principal Executive Officer, Principal Financial Officer, and our Creative Director, or collectively, our Named Executive Officers.
Compensation Philosophy
Our executive compensation program is designed to provide proper incentive to management to maximize performance in order to encourage creation of stockholder value and achievement of strategic corporate objectives, attract and retain qualified, skilled and dedicated executives on a privately held television companylong-term basis, reward past performance and network dedicatedprovide incentives for future performance.
In keeping with these objectives, our goal is to teenagers, of which Mr. Hoffman currently serves as its Chief Executive Officer. VTV does not have a separate compensation committee, but Mr. Furrow has elected to not participate in compensation discussions involving Mr. Hoffman. In early 2005, Mr. Hoffman resigned as a member(1) align the interests of the Compensationexecutive officers with the interests of our stockholders, (2) ensure the long-term commitment of our management team, and Stock Option(3) ensure accountability for both our overall performance and the individual's performance and contribution.
In setting the level of cash and equity compensation, the Compensation Committee of our Board of Directors considers various factors, including our overall performance and was replaced by Mr. Sanfilippo.the individual's performance during the year, the uniqueness and relative performance of the executive's skill set, the expected future contribution to us and competitive conditions.
Elements of Compensation
26
Our compensation structure for our Named Executive Compensation
Officers consists of a combination of (1) base salary, (2) long-term incentive awards (equity awards), (3) company paid benefits, and (4) discretionary bonuses. The following table sets forthCompensation Committee also takes into account certain information with respectchange in control provisions available to compensation for the years ended November 27, 2004, November 29, 2003, and November 30, 2002, respectively, paid to our chief executive officer and our other most highly compensated executive officers as of November 27, 2004. In this proxy statement, we refer to these individuals as our Named Executive Officers.
Summary Compensation TableOur Creative Director, Joe Dahan, was our only Named Executive Officer with an employment agreement in fiscal 2007. The employment agreement was entered into with him in connection with the completion of the merger by and among, us, our Joe's Jeans Subsidiary Inc., or Joe's Subsidiary, and JD Holdings, Inc., or JD Holdings.
During fiscal 2007, both Mr. Crossman and Mr. Sandhu were at-will employees. Mr. Sandhu was given an employment offer letter in connection with his offer of employment as our Chief Financial Officer in August 2007. On May 30, 2008, we entered into an employment agreement with Mr. Crossman for his continued employment with us. The Compensation Committee believed that an employment agreement was an important part to ensure Mr. Crossman's long-term commitment to us.
|
|
|
| Annual Compensation |
| Long Term |
|
|
| ||||||||
Name and |
| Year |
| Salary |
| Bonus |
| Other Annual Compensation ($) |
| Securities |
| All Other |
| ||||
Samuel J. Furrow, Jr. |
| 2004 |
| $ | 280,770 | (1) | $ | 50,000 | (2) | $ | 3,209 | (3) | 250,000 |
| $ | 10,577 | (4) |
Chief Executive Officer |
| 2003 |
| 275,000 |
| — |
| — |
| 100,000 |
| — |
| ||||
|
| 2002 |
| 160,000 |
| — |
| — |
| — | (5) | — |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marc B. Crossman |
| 2004 |
| $ | 275,000 |
| — |
| $ | 12,403 | (3) | 200,000 |
| — |
| ||
President and |
| 2003 |
| 275,000 |
| — |
| 12,000 | (6) | 1,000,000 |
| — |
| ||||
Chief Financial Officer |
| 2002 |
| — |
| — |
| — |
| 17,874 | (7) | — |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Richard A. Quiroga |
| 2004 |
| $ | 49,038 | (8) | — |
| $ | 12,403 | (3) | 100,000 |
| — |
| ||
Vice President of |
| 2003 |
| — |
| — |
| — |
| — |
| — |
| ||||
Finance |
| 2002 |
| — |
| — |
| — |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Shane Whalen |
| 2004 |
| $ | 125,000 |
| — |
| — |
| — |
| — |
| |||
Chief Operating Officer |
| 2003 |
| 125,000 |
| — |
| $ | 1,000 | (6) | 50,000 |
| — |
| |||
|
| 2002 |
| 9,170 | (9) | — |
| — |
| — | (5) | — |
| ||||
Engagement of Compensation Consultant
In September 2007, our Compensation Committee engaged a compensation consultant, Mercer Human Resources Consulting, to serve as an independent advisor to the Compensation Committee to conduct a review of the compensation for our Chief Executive Officer and non-employee Directors, examine the pay level and practices of a group of peer companies similar in terms of size and industry, highlight trends in such compensation and provide recommendations regarding our practices. Mercer prepared for our Compensation Committee a competitive analysis of compensation utilizing comparable company compensation data, including size and industry appropriate survey data and advice around short and long-term incentive programs. The information prepared by Mercer provided the Compensation Committee with data to allow them to evaluate and determine an appropriate amount for a bonus and equity award grant for our Chief Executive Officer for fiscal 2007 and compensation for non-employee directors. More particularly, this information provided the basis for discussion of compensation for fiscal 2008 for our Chief Executive Officer.
The peer companies selected for comparison purposes included other apparel, footwear and accessories companies of a comparable size with publicly available information. The companies in the peer group were as follows:
(1) The information presented included data for the 75th percentile, 50th percentile, and 25th percentile. Our Compensation Committee determined that based upon the data presented, the total direct compensation for our Chief Executive Officer in prior years was just below the 25th percentile due to a lack of cash bonus opportunity. Thus, the Compensation Committee believed that a cash bonus would be an important element of compensation for fiscal 2007 and beyond for our Chief Executive Officer. Mr. Furrow’s
Base Salary
Our Compensation Committee reviews base salary for Chief Executive Officer on an annual basis, and for fiscal 2007 considered the recommendation by the Chief Executive Officer for the other Named Executive Officers other than the Chief Executive Officer. In fiscal 2007, our Chief Executive Officer's base salary was increasedthe same as his base salary for the prior year. The Compensation Committee utilized the data from Mercer as a basis for the discussion of our Chief Executive Officer's salary for fiscal 2008.
Bonuses
Historically, the Compensation Committee has not granted a bonus to $300,000 from $275,000 after the September 3, 2004 meetingour Chief Executive Officer. As a result of the lack of bonus opportunity in prior years and recognizing the importance of this element of compensation, for fiscal 2007, the Compensation and Stock Option Committee.
(2) The Compensation and Stock Option Committee established, on September 3, 2004,elected to grant Mr. Crossman a quarterlydiscretionary bonus program for Mr. Furrow, which awards him with a quarterly bonus payment in the amount of $25,000$300,000, $150,000 of which was payable on or before the end of our 2007 fiscal year and $150,000 to be paid in connection with the execution of an employment agreement in fiscal 2008. Factors that the Compensation Committee considered in determining this bonus amount included Mr. Crossman's performance over the past fiscal year along with our financial and strategic performance, which included successfully selling the assets from our other business segments and focusing our resources on our Joe's® brand, completing the merger to acquire the Joe's® assets, regaining compliance with Nasdaq listing standards, and competitive considerations, including the market data indicating that bonus opportunity is an important element in cash compensation for a Chief Executive Officer. This cash bonus was the first cash bonus paid to Mr. Crossman since he commenced employment in March 2003.
Long-Term Incentive Compensation
Our Compensation Committee administers our 2004 Stock Incentive Plan and believes that the long-term commitment of our employees, including our Named Executive Officers, is an important factor in our future performance. The primary element used to promote the long-term performance
and commitment of our Named Executive Officers is long-term incentive compensation through grants of stock options and restricted stock. In fiscal 2007, the Compensation Committee shifted from its past practice of granting options to purchase shares of our common stock to granting restricted common stock. This decision to change past practices was in part due to fluctuations in the market price of our common stock and the decision to re-price out-of-the-money incentive stock options in fiscal 2006 as part of a retention incentive. The Compensation Committee believes that equity grants with time-based vesting restrictions aid in retention and better align the interests of our Named Executive Officers with those of our stockholders. Further, the equity grants motivate our Named Executive Officers to make long-term decisions that are in our best interest and to provide incentive to maximize stockholder value.
We do not coordinate the timing of equity award grants with the release of financial results or other material announcements by us and generally, we have made annual equity grants to our Chief Executive Officer and non-employee directors in connection with our annual meeting of stockholders.
We believe that providing Named Executive Officers who have responsibility for our management and growth with an opportunity to increase their stock ownership aligns the interests of the executive officers with those of our stockholders. Accordingly, the Compensation Committee also considers equity grants to be an important aspect in compensating and providing incentives to management and employees. The Compensation Committee determines the number of shares for each stock incentive grant based upon the executive officer's role and responsibilities, the executive officer's base salary, the recommendation of our Chief Executive Officer of the job performance of the individual. For the equity grants to our Chief Executive Officer and our non-employee directors, the Compensation Committee also utilized the data presented and compared with comparable awards to individuals in similar positions in our industry.
Benefits
Benefits offered to our Named Executive Officers are substantially the same as those offered to all our regular employees and generally include medical insurance, dental insurance, 401(k) plan, disability insurance, life insurance and flexible spending account. For our Named Executive Officers, we pay all premiums associated with such benefits as described in the footnote 6 to the Summary Compensation Table.
Change in Control Provisions
Our Creative Director and our Chief Financial Officer have change in control provisions in each person's employment agreement and employment offer letter, respectively. These provisions provide these Named Executive Officers with certain compensation arrangements in the event that we are profitable, as measured at the end of the immediately preceding fiscal quarter. Mr. Furrow was awarded a bonus payment for our performance in the third and fourth quarters of fiscal 2004; however, his fourth quarter bonus payment was made in March 2005, but is reported with his fiscal 2004 compensation.
(3) Represents amounts paid in connection with health insurance premiums in excess of health insurance benefits provided to other non-executive officers and employees.
(4) Represents payout for accrued but unused vacation time for fiscal 2004 at Mr. Furrow’s daily rate.
(5) No executive officer received restricted stock awards or option grants during the fiscal year ending November 30, 2002.
(6) This amount represents payments made in connection with relocation expenses.
(7) These options were issued in fiscal 2002 in connection with Mr. Crossman’s service during fiscal 2001 and fiscal 2002 as a non-employee member of our Board of Directors.
(8) Mr. Quiroga commenced employment with us on August 2, 2004 as our Vice President of Finance with an annul salary of $150,000.
27
(9) Mr. Whalen commenced employment with us in October 2002 as our Vice President of Corporate Development.
Employment Contracts, Termination of Employment and Change in Control
We have not entered into any employment or severance agreements with any of our Named Executive Officers. However, in connection with Mr. Crossman’s option agreement for his grant in May 2003, in the event of a change in control of the company, Mr. Crossman’s options granted prior to the adoption of the 2004 Stock Plan, to the extent not otherwise exercisable, immediately become exercisable. As of March 25, 2005, all options have vested for Mr. Crossman that are subject to this change in control provision. All options granted pursuant tooccurs. In addition, our 2004 Stock Incentive Plan are subject tocontains a change in control provision which provides for the immediate vesting in full of all grants or lapse of all restrictions for all grantees.grantees, including our Named Executive Officers, in the event a change in control occurs.
Mr. Crossman's employment agreement entered into in May 2008 contains a change in control provision that provides him with certain severance payments and benefits, including an amount equal to 24 months of his prior year's base salary and bonus in the event his employment is terminated by us within 18 months following a change in control and without cause, or terminated by Mr. Crossman within 18 months following a change in control and for good reason.
Stock Option GrantsRelationship Between Elements and Objectives
In determining the total amount and mixture of the compensation package for our Chief Executive Officer, our Compensation Committee subjectively considers individual performance, including past and expected contributions, overall performance of the company as a whole, long-term goals and such other
factors as our Compensation Committee determines appropriate. The use of both cash compensation (salary and bonus) and long-term compensation (equity awards) achieves the objectives of attracting, motivating and retaining our Chief Executive Officer, other Named Executive Officers and employees. Long-term compensation realized through the use of equity awards achieves the objectives of aligning management's interests with stockholders' interests and ensuring the long-term commitment of the management team. For fiscal 2007, our Compensation Committee determined that for our Chief Executive Officer the total cash compensation should be higher than the 25th percentile for our peer group and elected to provide him with a bonus. For fiscal 2008, the Compensation Committee considered, evaluated and discussed the data presented to provide the basis for its discussion and decision regarding compensation.
Executive Management's Involvement in Compensation Policies
Our Compensation Committee determines the compensation of our Chief Executive Officer and directors and reviewed and approved our compensation of our Creative Director and Chief Financial Officer based upon the recommendation from our Chief Executive Officer regarding expected contributions, long term goals and other factors appropriate to the respective positions. Our Compensation Committee approves all grants of equity compensation, including the pool for non-officer employees. All equity compensation grants to persons other than the Board of Directors or our Chief Executive Officer are approved based upon a recommendation from our Chief Executive Officer.
Tax Considerations
We generally intend to qualify executive compensation for deductibility without limitation under section 162(m) of the Internal Revenue Code. Section 162(m) provides that, for purposes of the regular income tax and the alternative minimum tax, the otherwise allowable deduction for compensation paid or accrued with respect to a covered employee of a publicly-held corporation (other than certain exempt performance-based compensation) is limited to no more than $1 million per year. None of the non-exempt compensation we paid to any of our Named Executive Officers for 2007 exceeded the $1 million limit.
Accounting for Stock-Based Compensation
We account for stock-based payments, including restricted stock awards, in accordance with the requirements of SFAS No. 123R, "Share-Based Payment, or SFAS No. 123R. Under this accounting pronouncement, we must value all stock-based compensation granted to employees and directors under the fair value method and expense those amounts in the income statement over the award's vesting period.
Executive Officer Compensation
The following table sets forthprovides certain summary information concerning the stock options we granted duringcompensation earned by our Named Executive Officers in the position of the Principal Executive Officer, Principal Financial
Officer, and Creative Director for services rendered in all capacities to us for the fiscal year ended November 27, 200430, 2007.
Summary Compensation Table
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation(6) | Total | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2007 | $ | 375,001 | $ | 150,000 | (1) | $ | 375,000 | (2) | $ | — | $ | 72,838 | $ | 972,839 | |||||||
Hamish Sandhu | 2007 | 51,250 | (3) | — | — | 123,000 | (4) | 131 | 174,381 | |||||||||||||
Joseph Dahan | 2007 | 104,011 | (5) | — | — | — | 34,993 | 139,004 |
Amounts shown as potential realizable values are based on compounded annual ratesan employment letter agreement during the second quarter of share price appreciation of five and ten percent overfiscal 2008.
Option Grants in the Fiscal Year Ended November 27, 2004
Individual Grants |
| Potential Realizable Value |
| |||||||||||||
Name |
| Number of |
| % of Total |
| Exercise |
| Expiration |
| 5% ($) |
| 10% ($) |
| |||
Samuel J. Furrow, Jr. |
| 250,000 |
| 21.8 | % | $ | 1.60 |
| 09/03/14 |
| $ | 252,500 |
| $ | 637,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Marc B. Crossman |
| 200,000 |
| 17.5 | % | $ | 1.60 |
| 09/03/14 |
| $ | 202,000 |
| $ | 510,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Richard A. Quiroga |
| 100,000 |
| 8.7 | % | $ | 1.55 |
| 08/02/14 |
| $ | 97,000 |
| $ | 247,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Shane Whalen |
| 0 |
| — |
| — |
| — |
| — |
| — |
|
(1) The exercise price per share of options granted represented thetotal fair market value of the underlying shares ofrestricted common stock grant to Mr. Crossman on October 15, 2007 to be recognized by us as an expense in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), or SFAS 123R, in connection with the grant. The restricted common stock vests as follows: one-third of the shares vest on October 15, 2008, one-third of the shares vest on October 15, 2009, and one-third of the shares vest on October 15, 2010.
28
(2) The total number of optionssame terms and conditions granted to other non-officer employees. The restricted common stock units are scheduled to vest every six months over a four year period.
Name and Principal Position | Year | Company Paid Health Insurance(a) | Unused Vacation Payout(b) | 401(k) Match | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2007 | $ | 21,147 | $ | 45,371 | $ | 6,321 | $ | 72,838 | |||||||
Hamish Sandhu | 2007 | $ | 131 | — | — | $ | 131 | |||||||||
Joseph Dahan | 2007 | $ | 30,378 | $ | 4,615 | — | $ | 34,993 |
(3) As required under the SEC’s rules, amounts represented by hypothetical gains that couldare eligible to be achievedpaid out for the respective option if exercisedearned but unused vacation at the end of the option term. These gains are based on assumed rateseach fiscal year.
Grants of stock price appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date. These assumptions are not intended to forecast future appreciation of our stock price. The potential realizable value computation does not take into account federal or state income tax consequences of option exercises or sales of appreciated stock. If our stock price does not actually increase to a level above the applicable exercise price at the time of exercise, the realized value to the Named Executive Officers from these options will be zero.Plan-Based Awards
Fiscal Year End Option Values
The following table sets forth certain information with respect to stock options exercised by the Named Executive Officers during the fiscal year ended November 27, 2004. In addition, the table sets forth the number of shares covered by unexercised stock options held by the Named Executive Officers as November 27, 2004, and the value of “in-the-money” stock options, which represents the positive spread between the exercise price of a stock and the market price of the shares subject to such option as of November 27, 2004.
Aggregated Option Exercises in Fiscal Year Ended November 27, 2004 and Fiscal Year End
Option Values
|
| Shares |
|
|
| Number of Securities |
| Value of Unexercised In- the- |
| |||||||
|
| Acquired |
|
|
| Underlying Unexercised |
| Money Options at FY-End |
| |||||||
|
| on Exercise |
| Value |
| Options at FY-End (#) |
| ($)(1) |
| |||||||
Name |
| (#) |
| Realized ($) |
| Exercisable |
| Unexercisable |
| Exercisable |
| Unexercisable |
| |||
Samuel J. Furrow, Jr. |
| 0 |
| $ | 0 |
| 291,667 |
| 208,333 |
| $ | 163,667 |
| $ | 120,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Marc B. Crossman |
| 0 |
| $ | 0 |
| 910,181 |
| 333,334 |
| $ | 84,196 |
| $ | 96,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Richard A. Quiroga |
| 0 |
| $ | 0 |
| 12,500 |
| 87,500 |
| $ | 7,875 |
| $ | 55,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Shane Whalen |
| 0 |
| $ | 0 |
| 50,000 |
| 0 |
| $ | 0 |
| $ | 0 |
|
(1) Value realized is calculated based on a closing price per share of $2.18 for our common stock on November 26, 2004, as reported by the NASDAQ SmallCap Market, less the per share exercise price multiplied by the number of shares issuable upon exercise of the option.
29
Option Repricing
The following table sets forth information concerning the repricingregarding grants of options held by Marc Crossman, our Chief Financial Officer, with respectawards pursuant to options that were originally granted in connection with commencement of his employment as our Chief Financial Officer. However, on the original date of the grant of the options to Mr. Crossman, there were not enough shares authorized under the 2000 Employee Stock Incentive Plan to grant Mr. Crossman the options. As a result, Mr. Crossman’s options were cancelled and reissued upon our common stockholder approval of an increase in shares authorized and available for grant under the 2000 Employee Stock Incentive Plan at our annual meeting of stockholders held on May 22, 2003. The term of the reissued option was 10 years rather than the 20 year term of the original option.
Ten Year Option Repricings
Name and Position |
| Date |
| Number of |
| Market Price of |
| Exercise Price |
| New |
| Length of |
| |||
Marc B. Crossman |
| 5/22/03 |
| 1,000,000 |
| $ | 2.60 |
| $ | 2.86 |
| $ | 2.86 |
| 19.8 years |
|
401(k) Plan
On December 1, 2002, we established a tax qualified defined contribution 401(k) Profit Sharing Plan. All employees who have worked for us for 30 consecutive days may participate in the 401(k) Profit Sharing Plan and may contribute, subject to statutory limits, up to 100% of their salary to the plan. Our elective matching contributions may be made on a discretionary basis. All employees who have worked 500 hours qualify for profit sharing in the event at the end of each year we decide to do so. Costs of the plan charged to operations were $8,000 for the year ended November 27, 2004 and $20,000 for the year ended November 29, 2003, respectively.
30
Equity Compensation Plan Information
The following table sets forth certain information about our common stock that may be issued upon the exercise of options, warrants and rights under all of the our compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance as of November 27, 2004, which includes our 2004 Stock Incentive Plan to our 2000 Employee Stock Incentive Plan and 2000 Director Stock Incentive Plan. We no longer grant options underNamed Executive Officers during our 2000 Employee Stock Incentive Plan or our 2000 Director Stock Incentive Plan after the adoption and approvalfiscal year ended November 30, 2007:
| | Estimated Future Payouts Under Equity Incentive Plan Awards | | | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Exercise or Base Price of Option Awards ($ / Sh) | Grant Date Fair Value of Stock and Option Awards | ||||||||||||||||
Name | Grant Date | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||
Marc Crossman(1) | 15-Oct-07 | 235,849 | — | $ | 375,000 | ||||||||||||||
Hamish Sandhu(2) | 27-Aug-07 | 100,000 | $ | 1.92 | — |
Plan Category |
| Number of Securities to |
| Weighted Average |
| Number of Securities |
| |
|
| (a) |
| (b) |
| (c) |
| |
Equity Compensation Plans approved by security holders (1): |
|
|
|
|
|
|
| |
2004 Stock Plan |
| 1,145,000 |
| $ | 1.59 |
| 120,172 |
|
2000 Employee Plan |
| 1,850,008 |
| $ | 2.26 |
| — |
|
2000 Director Plan |
| 203,546 |
| $ | 0.79 |
| — |
|
TOTAL |
| 3,198,554 |
| $ | 1.93 |
| 120,172 |
|
(1) See “2004 Stock Incentive Plan,” “2000 Employee Stock Incentive Plan” and “2000 Director Stock Incentive Plan” described herein.
STOCK PLANS
2004 Stock Incentive Plan
Our 2004 Stock Incentive Plan, or 2004 Stock Plan, is designed to enhance our ability to attract and retain officers, directors, employees and consultants of outstanding ability and to provide selected officers, employees, directors and consultants with an interest in us parallel to that of our common stockholders. The 2004 Stock Plan provides for the award of options, whether nonqualified or incentive, restricted common stock that vest as follows: one-third of the shares vest on October 15, 2008, one-third of the shares vest on October 15, 2009, and one-third of the shares vest on October 15, 2010. These shares of restricted common stock units, performance shares, performance share units, purchases, share awards, stock appreciation rights or other awards based on the value of our common stock to our officers, employees, directors and consultants, as well as those officers, employees, directors and consultants of our subsidiaries, such as Innovo, Inc., or Innovo, Innovo Azteca Apparel, Inc., or IAA, and Joe’s Jeans, Inc., or Joe’s. The 2004 Stock Plan became effective on June 3, 2004, the date it was approved by our common stockholders and continues in effect until June 3, 2014, unless earlier terminated by our Board of Directors. Options granted under the 2004 Stock Plan may be either “incentive stock options,” or ISOs, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or the Code, or “nonqualified stock options,” or NQSOs.
Subject to adjustment for certain corporate events, the total of the number of shares of common stock which are available for the grant of awards under the 2004 Stock Plan is 1,265,172 shares of common stock; provided, that, for purposes of this limitation, any common stock subject to an option whichtime-based vesting requirements that automatically vests provided Mr. Crossman is canceledemployed by us on such date. There are no other requirements or expires without exercise will again become availableperformance targets that must be met in order for award under the 2004 Stock Plan. Upon forfeiture of awards in accordance with the provisions of the 2004 Stock Plan and the terms and conditions of the award, such shares will again be available for subsequent awards under the 2004 Stock Plan. Subject to adjustment, no employee will bevest.
31
of common stock, and the number of shares of common stock subject to any awards other than options or stock appreciation rights will not exceed 1,250,000 shares of common stock. Common stock available for issue or distribution under the 2004 Stock Plan will be authorized and unissued shares or shares reacquired by us in any manner.
The Compensation and Stock Option Committee of our Board of Directors administers the 2004 Stock Plan. For fiscal 2004, the Compensation and Stock Option Committee was comprised of Messrs. Rizvi, Factor and Hoffman. Mr. Rizvi is Chairman of the Compensation and Stock Option Committee. All of Messr. Rizvi, Factor and Hoffman are non-employee directors within the meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, and are also outside directors within the meaning of Section 162(m) of the Code. The Compensation and Stock Option Committee (i) approves the selection of participants, (ii) determines the type of stock awards to be made to participants, (iii) determines the number of shares of common stock subject to awards, (iv) determines the terms and conditions of any awards granted there under (including, but not limited to, any restriction and forfeiture conditions on such awards) and (v) has the authority to interpret the 2004 Stock Plan, to establish, amend, and rescind any rules and regulations relating to the 2004 Stock Plan, to determine the terms and provisions of any agreements entered into there under, and to make all other determinations necessary or advisable for the administration of the 2004 Stock Plan.
The 2004 Stock Plan is intended to: (a) provide incentive to our officers and key employees and our affiliates to stimulate their efforts toward our continued success and to operate and manage the business in a manner that will provide for our long-term growth and profitability; (b) encourage stock ownership by officers and key employees by providing them with a means to acquire a proprietary interest in us, acquire shares of stock, or to receive compensation which is based upon appreciation in the value of the stock; and (c) provide means of obtaining, rewarding and retaining key personnel and consultants.
The number of shares of stock as to which a stock incentive may be granted will be determined by the Compensation and Stock Option Committee, in its sole discretion, subject to the limitations of the 2004 Stock Plan. To the extent required under Section 162(m) of the Code and the regulations thereunder for compensation to be treated as qualified performance based compensation, the maximum number of shares of stock with respect to which options may be granted during any one year period to any employee may not exceed 1,250,000.
Stock option grants issued under the 2004 Stock Plan may be granted only to our officers, employees, directors and consultants, as well as those officers, employees, directors and consultants of our subsidiaries. The aggregate fair market value (determined as of the date an ISO is granted) of stock with respect to which stock options intended to meet the requirements of Section 422 of the Code become exercisable for the first time by an individual during any calendar year under all of our plans and our subsidiaries may not exceed $100,000; provided further, that if the limitation is exceeded, the ISOs which cause the limitation to be exceeded will be treated as NQSOs. As of November 27, 2004, 1,145,000 options have been issued under our 2004 Stock Plan. Awards under the 2004 Stock Plan are discretionary. Therefore, it is not possible to determine the benefits that will be received in the future by participants in the 2004 Stock Plan.
2000 Employee Stock Incentive Plan
The 2000 Employee Stock Incentive Plan, or the 2000 Employee Plan, provided for the grant of options to our officers, employees and consultants and to our affiliates. Upon the approval of the 2004 Stock Plan on June 3, 2004, we indicated that we would not make any further grants under the 2000 Employee Plan. The 2000 Employee Plan was adopted by our Board of Directors on March 12, 2000 and approved at the 2000 annual meeting of stockholders and amended at the annual meeting of stockholders held on May 22, 2003. Up
32
to 3,000,000 shares of our common stock, subject to adjustment as provided in the 2000 Employee Plan, were originally authorized for issuance under the 2000 Employee Plan. As of November 27, 2004, 1,850,008 options remained outstanding under our 2000 Employee Plan. The 2000 Employee Plan remains in effect for awards outstanding as of June 3, 2004. Options granted under the 2000 Employee Plan were either ISOs or NQSOs.
2000 Director Stock Incentive Plan
The purpose of the 2000 Director Stock Incentive Plan, or 2000 Director Plan, was to permit the granting of stock options to our Board of Directors who are not our employees at an exercise price less than market value at the date of grant in lieu of paying Board of Directors’ fees in cash, thereby advancing our interests by encouraging and enabling the acquisition of our common stock by our Board of Directors whose judgment and ability we rely upon for the attainment of our long-term growth and development. However, in addition to the grants, in fiscal 2003, we also paid all of our non-employee directors a cash fee in addition to this grant of stock options. Accordingly, the 2000 Director Plan intended to promote a close identity of interest among us, our Board of Directors, and our common stockholders, as well as to provide a means to attract and attain well-qualified members of our Board of Directors. The 2000 Director Plan was adopted by our Board of Directors on September 13, 2000 and approved by our common stockholders at the 1999 annual meeting of stockholders. An aggregate of 500,000 shares of our common stock, subject to adjustment, were authorized for issuance or delivery upon the exercise of options granted under the 2000 Director Plan. As of November 27, 2004, 203,546 options remained outstanding under the 2000 Director Plan. Upon the approval of the 2004 Plan on June 3, 2004, we indicated that we would not make any further grants under the 2000 Director Plan. The 2000 Director Plan remains in effect for awards outstanding as of June 3, 2004. Options granted under the 2000 Director Plan are nonqualified stock options.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
As our business grows, our Compensation and Stock Option Committee expects to work closely with management to design an executive compensation program to assist us in attracting and retaining needed outstanding executives and senior management personnel. The design and implementation of such program will evolve as needed, but will be based primarily on two elements: (i) providing compensation opportunities that are competitive with competing companies of similar size; and (ii) linking executives’ compensation with our or a division’s financial performance by rewarding the achievement of our short-term and long-term objectives.
The three principal components of the executive compensation program are annual base salary, short-term incentive compensation in the form of performance bonuses payable in cash, and long-term incentive compensation in the form of stock options and other equity awards. Our executive officers are elected on an annual basis and serve at the discretion of our Board of Directors. Each compensation package contains a mix of these components.
During fiscal 2004, the Compensation and Stock Option Committee met or acted through written consent a total of five times. In an effort to recruit a Vice President of Finance who could also serve as our principal accounting officer, the Compensation and Stock Option and Stock Option Committee met to discuss the appropriate base salary and incentive compensation package to recruit and retain such an individual. As a result, the Compensation Committee unanimously approved Mr. Quiroga’s compensation package, which included a base salary of $150,000 and an incentive stock award of an option to purchase up to 100,000 shares of our common stock at an exercise price of $1.92, the closing price of our common stock on the date of grant. This stock option was subject to a time-based vesting ratablyrequirement and vested automatically on a monthly basis over a 24 monthtwo year period provided that Mr. Sandhu was employed by us on the vesting date. On December 18, 2007, Mr. Sandhu elected to forfeit and cancel his stock option award in exchange for a grant of continued employment.100,000 restricted common stock units on the same terms and conditions granted to other non-officer employees. The restricted common stock units are subject to a time-based vesting requirement and are scheduled to vest every six months over a four year period provided that Mr. Sandhu continues to be employed on such vesting date. There are no other requirements or performance targets that must be met in order for such grant to vest. On June 18, 2008, 12,500 shares of the restricted common stock units vested and were issued to Mr. Sandhu net of shares withheld to satisfy his minimum tax withholding obligation.
Outstanding Equity Award at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by our Named Executive Officers during our fiscal year ended November 30, 2007:
| Option Awards | Stock Awards | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock that Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||
Marc Crossman | 235,849 | $ | 375,000 | 235,849 | $ | 271,226 | ||||||||||||||||||||||
�� | 25,641 | $ | 0.39 | 13-Dec-10 | ||||||||||||||||||||||||
10,000 | $ | 1.00 | 17-Apr-12 | |||||||||||||||||||||||||
200,000 | $ | 1.63 | 3-Sep-14 | |||||||||||||||||||||||||
250,000 | $ | 1.02 | 13-Jun-15 | |||||||||||||||||||||||||
1,000,000 | $ | 1.02 | 23-May-13 | |||||||||||||||||||||||||
Hamish Sandhu | 12,500 | 87,500 | 87,500 | $ | 1.92 | 26-Aug-17 | (1) | |||||||||||||||||||||
Joseph Dahan | 200,000 | $ | 1.02 | 4-Aug-15 |
Option Exercises and Stock Vested
There were no option exercises or restricted stock that vested by our Named Executive Officers in our fiscal year ended November 30, 2007.
Pension Benefits
We do not provide any pension benefits to any of our Named Executive Officers or employees.
Nonqualified Deferred Compensation
We do not provide any non-qualified deferred compensation to any of our Named Executive Officers or employees.
Employment Contracts and Termination of Employment and Change in Control Arrangements
Joseph M. Dahan
In lightconnection with the completion of this new hire, ata merger between us, our Joe's Subsidiary and JD Holdings, Mr. Dahan's employment agreement automatically became effective for service as our Creative Director.
Under the September 3, 2004 meeting,employment agreement, the initial term of employment is five years with automatic renewals for successive one year periods thereafter, unless terminated earlier. Mr. Dahan is entitled to an annual salary of $300,000 and other discretionary benefits that the Compensation Committee of the Board of Directors may deem appropriate in its sole and Stock Option Committee metabsolute discretion.
Under the terms of the employment agreement, we may terminate Mr. Dahan for Cause or if he becomes Disabled. "Cause" is defined as (i) a conviction, plea of guilty or nolo contendere to discussa felony or a crime of moral turpitude; (ii) a material breach of any provision of the compensation arrangementsemployment agreement that is not cured within 45 days of receipt of written notice of such breach; (iii) the solicitation,
persuasion or attempt at persuasion for any employee, consultant, contractor, customer or potential customer to engage in an act prohibited by the employment agreement; or (iv) a violation of any of our policies in our handbook or code of ethics and such violation constitutes a breach of the Code of Ethics or warrants termination. "Disability" is defined as inability to perform duties for 180 consecutive days or shorter periods aggregating 270 days during any 12 month period. Should we terminate Mr. FurrowDahan's employment for Cause or Disability, we would only be required to pay him through the date of termination. We may terminate Mr. Dahan's employment without Cause at any time upon two weeks notice, provided that we pay him the present value of the annual salary amounts otherwise due to him for the remainder of the initial term of employment or any renewal term. Mr. Dahan may terminate his employment for Good Reason at any time within 30 days written notice. "Good Reason" is defined as (i) a material breach of the employment agreement by us that is not cured within 30 days of written notice; or (ii) Mr. Dahan's decision to terminate employment at any time after 18 months following a Change in Control. A "Change in Control" is defined as (i) the sale or disposal of all or substantially all of the assets; (ii) the merger or consolidation with another company provided that our stockholders as a group no longer own at least 50 percent of the voting power of the surviving corporation; (iii) any person or entity becoming the beneficial owner of 50 percent or more of our combined voting power; or (iv) the approval by our stockholders to liquidate or dissolve. In the event that Mr. Dahan terminates his employment for Good Reason, then he will be entitled to the present value of the annual salary amounts otherwise due to him for the remainder of the initial term of employment or any renewal term. Further, Mr. Dahan may terminate his employment for any reason upon ten business days' notice and only be entitled to his salary as of the date of termination on a pro rata basis.
The employment agreement contains customary terms and conditions related to confidentiality of information, ownership by us of all intellectual property, including future designs and trademarks, alternative dispute resolution and Mr. Crossman, keeping in mindDahan's duties and responsibilities to us as Creative Director.
Hamish Sandhu
In connection with Mr. Sandhu's appointment as CFO, we entered into a written offer letter whereby Mr. Sandhu agreed to serve as our CFO. Under the principal componentsterms of
33
our executive compensation program and the recent promotion ofoffer letter, Mr. Crossman to the position of President. Based upon these considerations, the Compensation and Stock Option Committee discussed the base salaries of Mr. Furrow and Mr. Crossman, bonus payments, if any, and incentive compensation in the form of stock option grants. Based upon individual performance and analysis of compensation for the positions at comparative companies, the contributions and duties of a CEO and the desire to provide incentive to direct the company to profitability, the Compensation and Stock Option Committee elected to increase theSandhu's annual base salary foris $205,000. In addition, Mr. Furrow by $25,000 from $275,000Sandhu received a grant on August 27, 2007, pursuant to $300,000, establish a quarterly bonus program which would award and pay him a bonus payment in the amount of $25,000 in the event that the company achieved profitability in its third quarter of fiscalour 2004 and future quarters, and provided him with an incentive stock award of an optionStock Incentive Plan, to purchase up to 250,000100,000 shares of our common stock vesting ratablyat an exercise price equal to the closing price of our common stock on that date. The option has a term of 10 years, vests in equal monthly installments over a 12 month periodthe next 24 months and first became exercisable on September 27, 2007. We also agreed to pay the full cost of continued employment. The Compensation and Stock Option Committee,participation in discussingour health insurance plan for Mr. Crossman’s promotion to PresidentSandhu and his previous contributionsfamily. Mr. Sandhu will also be entitled to six months of his monthly base salary as a severance payment in the event that a Change in Control occurs during the four years following August 27, 2007 and his employment is subsequently terminated. For purposes of the offer letter, a "Change in Control" shall be deemed to have occurred upon the closing of a transaction which: (i) we sell or otherwise dispose of all or substantially all of our assets; or (ii) there is a merger or consolidation of us with any other corporation or corporations, provided that our shareholders, as a group, do not hold, immediately after such event, at least 50 percent of the voting power of the surviving or successor corporation. Notwithstanding anything to the company, elected to continue to paycontrary, Mr. CrossmanSandhu is an annual base salary of $275,000,employee at-will and provide himhas not entered into an employment agreement with us.
On December 18, 2007, we entered into a Restricted Stock Unit Agreement, or RSU Award whereby we granted Mr. Sandhu an incentive stock award of an optionrestricted stock units representing the right to purchase up to 200,000receive 100,000 shares of our common stock, vesting ratablyor the Restricted Stock Units, pursuant to the 2004 Stock Incentive Plan. The Restricted Stock Units are scheduled to vest every six months over a 12 month periodfour year period. In conjunction with this award, Mr. Sandhu agreed to terminate his employee stock option to purchase 100,000 shares of continued employment.our common stock granted pursuant to the 2004 Stock Incentive Plan on
August 27, 2007. Mr. Sandhu agreed to forfeit the 100,000 shares he was entitled to acquire under the terms of the stock option, which was scheduled to vest on a monthly basis over a two year period.
Marc Crossman
On May 30, 2008, we entered into an Executive Employment Agreement with Mr. Crossman to serve as our President and Chief Executive Officer, or the Crossman Employment Agreement. Mr. Crossman has been serving as our President since September 2004 and as Chief Executive Officer since January 2006 under an employment at-will arrangement. In connection with the execution of the Crossman Employment Agreement, Mr. Crossman received the second payment of his bonus for fiscal 2007 in the amount of $150,000.00, as described above.
NeitherUnder the terms of the Crossman Employment Agreement, Mr. FurrowCrossman receives an annual salary of $429,300 and is entitled to receive other cash and non-cash compensation, including an annual discretionary bonus targeted at 50% of his base salary based upon the achievement of financial and other performance criteria as set forth in the Crossman Employment Agreement, an annual grant of equity compensation pursuant to the 2004 Stock Incentive Plan, and life and disability insurance policies paid on his behalf. The Crossman Employment Agreement is effective as of December 1, 2007, the commencement of our 2008 fiscal year, and has an initial term of two years. The Crossman Employment Agreement automatically renews for additional two year periods if neither us nor Mr. Crossman has anprovide 180 days' advanced notice of non-renewal prior to the end of the term or upon the occurrence of a change in control.
In the event that Mr. Crossman's employment agreement withis terminated by us butother than for cause, terminated by Mr. Crossman does havefor good reason, terminated by us within 18 months following a change in control provisionand without cause, or terminated by Mr. Crossman within 18 months following a change in control and for good reason, Mr. Crossman will be entitled to certain severance payments and benefits, including an amount equal to 24 months of his prior year's base salary and bonus in exchange for his execution of a release of claims. Mr. Crossman will not be entitled to severance benefits if he dies during the term of his employment, he is terminated for cause or due to disability, he terminates his employment for a reason other than a good reason, or revokes his agreement to release us from any and all claims related to his employment.
Mr. Crossman is subject to confidentiality, non-solicitation and non-competition restrictions during the term of his employment and is subject to the confidentiality and non-solicitation provisions for a period of two years following termination of his employment.
2004 Stock Incentive Plan, Restricted Stock Agreement and Restricted Stock Unit Awards
Under the terms of the 2004 Stock Incentive Plan, all unvested awards accelerate and immediately vest upon the occurrence of a Change in Control for all grantees. Further, Mr. Crossman's Restricted Stock Agreement and each RSU Award contains certain provisions regarding the terms and conditions of the grant. Each vests upon the earliest to occur of the participant's death, Disability, or separation from service by us without Just Cause (as defined below). Death and Disability are defined in the Plan. Upon a separation from service for any other reason (including, without limitation, termination by us for Just Cause or by participant for any reason) prior to the date that participant becomes 100 percent vested in the award, the unvested units or shares are forfeited immediately. Under the award agreements, "Just Cause" means (a) a conviction for, or a plea of guilty or nolo contendere to, a felony or any other crime which involves fraud, dishonesty or moral turpitude, or (b) a material breach of any written employment policies or rules, including the our Code of Business Conduct and Ethics.
Potential Payments Upon Termination or Change in Control
The following table reflects the amounts that would be paid if a change in control or other termination event occurred on November 30, 2007 and our stock option grantprice per share was the closing market price as of that date. The closing market price of our common stock on November 30, 2007 was $1.15.
Termination Scenario (11/30/07) | Marc Crossman | Hamish Sandhu | Joseph Dahan | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Without Cause or for Good Reason(1) (within 18 months of Change in Control) | ||||||||||||
Severance pay(a) | $ | — | $ | — | $ | 1,470,443 | ||||||
Health benefits continuation(b) | — | — | 30,378 | |||||||||
Unexercised options | — | — | — | |||||||||
Unvested restricted stock | — | — | — | |||||||||
Total | $ | — | $ | — | $ | 1,500,821 | ||||||
Without Cause or for Good Reason(1) (no Change in Control) | ||||||||||||
Severance pay(a) | $ | — | $ | — | $ | 1,470,443 | ||||||
Health benefits continuation(b) | — | — | 30,378 | |||||||||
Unvested options | — | — | — | |||||||||
Unvested restricted stock | — | — | — | |||||||||
Total | $ | — | $ | — | $ | 1,500,821 | ||||||
Change in Control | ||||||||||||
Severance pay(2) | $ | — | $ | 102,500 | $ | — | ||||||
Unvested options(3) | — | 100,625 | — | |||||||||
Unvested restricted stock(3) | 271,226 | — | — | |||||||||
Total | $ | 271,226 | $ | 203,125 | $ | — | ||||||
Without Cause, Death or Disability | ||||||||||||
Unvested restricted stock(3) | $ | 271,226 | $ | — | $ | — | ||||||
Total | $ | 271,226 | $ | — | $ | — | ||||||
The Compensation Committee has reviewed and discussed elsewherethe Compensation Discussion and Analysis with management.
Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement. Asstatement for our 2008 Annual Meeting of March 25, 2005, all options have vested for Mr. Crossman that are subject to this change in control provision.Stockholders.
The SEC requires that this reportRespectfully Submitted by the Compensation Committee of the Compensation and Stock Option Committee comment on our policy with respect to Section 162(m)Board of the Code which limits the deductibility of our tax return of nonperformance-based compensation in excess of $1 million dollars paid to any of our named executive officers. The Compensation and Stock Option Committee is monitoring the effects of our compensation program with respect to Section 162(m) of the Code. To date, we have not suffered a loss of compensation as a result of the $1 million dollar limitation. The Compensation and Stock Option Committee reserves the right to design programs that recognize a full range of performance criteria critical to our success, even where the compensation paid under such programs may not be deductible.Directors,
REPORT ON CEO COMPENSATION
Mr. Furrow’s 2004 annual base salary, bonus payment and grant of stock options were based on the overall principles of executive compensation described above. The Compensation and Stock Option Committee reviewed Mr. Furrow’s compensation and overall assessment of his performance during its September 3, 2004 meeting. As discussed above, the Compensation and Stock Option Committee made adjustments to Mr. Furrow’s base salary, established a bonus program for him and granted him additional stock options in order to recognize the contributions and duties he has performed as a CEO coupled with the desire to provide incentive to direct the company to profitability and current market and organizational considerations. The Compensation and Stock Option Committee concluded that these modifications to his annual base salary, establishment of a bonus plan and grant of stock options were consistent with the overall performance of the company and industry standards for executives with similar responsibilities in similar companies.
The Compensation and Stock Option Committee for fiscal 2004:
Suhail R. Rizvi, Chairman of the Compensation and Stock Option Committee
Dean Factor
Kent Savage (Chairman)
Kelly Hoffman
Tom O'Riordan
Suhail Rizvi
34
REPORT OF THE AUDIT COMMITTEE
In accordance with the written charter of the Audit Committee, which was adopted by our Board of Directors on May 22, 2003, the Audit Committee assists the Board of Directors in oversight of the quality and integrity of our accounting, auditing, and financial reporting practices. In addition, the Audit Committee recommends to the full Board of Directors the selection of the independent auditors.
Currently, all Audit Committee members are “independent”"independent" under NASDAQ listing standards and as such term is defined in the rules and regulations of the SEC and Mr. Rizvi has also been designated to be an “audit"audit committee financial expert”expert" as such term is defined in the rules and regulations of the SEC.
In performing its oversight function, the Audit Committee reviewed and discussed our audited consolidated financial statements as of and for the year ended November 27, 200430, 2007 with management and our independent auditors. The Audit Committee also discussed with our independent auditors all matters required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, “Communication"Communication with Audit Committees”Committees" as amended and adopted by the Auditing StandardsPublic Company Accounting Oversight Board of the American Institute of Certified Public Accountants,in Rule 3200T, and, with and without management present, discussed and reviewed the results of the independent auditors’auditors' examination of the financial statements.
The Audit Committee obtained from the independent auditors a formal written statement describing all relationships between the independent auditors and us that might bear on the independent auditors’auditors' independence consistent with Independence Standards Board Standard No. 1, “Independence"Independence Discussions with Audit Committees.”" The Audit Committee discussed with the independent auditors any relationships that may have an impact on their objectivity and independence and satisfied itself that the non-audit services provided by the independent accountants are compatible with maintaining their independence.
��Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended November 27, 200430, 2007 for filing with the SEC.
The Audit Committee for fiscal 2004:Committee:
Suhail R. Rizvi, Chairman of the Audit Committee
Kelly Hoffman
Tom O'Riordan
Dean Factor
Vincent Sanfilippo
Kent Savage
35
Stock Performance Graph
The following graph compares, as of each of the dates indicated, the cumulative total common stockholder return for Innovo Group, the Standard and Poor’s 600 SmallCap Index, or S&P 600 Index, and the NASDAQ Stock Market (U.S.) Index, or the NASDAQ Market Index. Measurement points are the last trading day closest to each of our fiscal years ended November 30, 1999, November 30, 2000, December 1, 2001, November 30, 2002, November 29, 2003 and November 27, 2004. The graph assumes that an initial investment of $100 in our common stock, the S&P 600 Index, the NASDAQ Market Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessary indicative of future stock price performance.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURNAMONG INNOVO GROUP INC.,NASDAQ MARKET INDEX AND S&P 600 INDEX
ASSUMES $100 INVESTED ON NOV. 30, 1999ASSUMES DIVIDEND REINVESTEDFISCAL YEAR ENDING NOV. 27, 2004
|
| 11/30/99 |
| 11/30/00 |
| 11/30/01 |
| 11/29/02 |
| 11/28/03 |
| 11/26/04 |
| ||||||
Innovo Group Inc. |
| $ | 100.00 |
| $ | 52.03 |
| $ | 125.44 |
| $ | 166.34 |
| $ | 262.40 |
| $ | 139.52 |
|
S&P 600 |
| $ | 100.00 |
| $ | 107.72 |
| $ | 120.73 |
| $ | 113.88 |
| $ | 150.07 |
| $ | 183.29 |
|
NASDAQ Market Index |
| $ | 100.00 |
| $ | 83.05 |
| $ | 62.15 |
| $ | 48.64 |
| $ | 64.83 |
| $ | 69.10 |
|
Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate this proxy statement or our future filings under those statutes, the Compensation and Stock Option Committee Report, theOur Audit Committee Reportcharter provides that that all transactions between us and the Stock Performance Graph are not deemed filedpersons or entities affiliated with the SEC and will notour officers, directors or principal common stockholders must be deemed incorporatedapproved by reference into any of those prior filings or into any future filings made by us under those statutes.
36
RELATED PARTY TRANSACTIONS
our Audit Committee. We have adopted abelieve that this policy requiring that any material transaction between us and persons or entities affiliated with officers, directors or principal common stockholders ofsuch related parties be approved by our company beAudit Committee ensures that such transactions are on terms no less favorable to us than reasonably could have been obtained in arms’arms' length transactions with independent third partiesparties.
Former Related Parties
Commerce Investment Group and all transactions between us and related parties must be approved by our Audit Committee.affiliates
Anderson Stock Purchase Agreement
Pursuant toHistorically, we have had a Stock Purchase Right Award granted in February 1997, our former President, Pat Anderson, purchased 250,000 shares of common stock, or the Award Shares,strategic relationship with payment made by the execution of a non-recourse note, or the Anderson Note, for the exercise price of $2.81 per share, or $703,125 in the aggregate. The Anderson Note was due, without interest, on April 30, 2002, and was collateralized by the 1997 Award Shares. On July 18, 2002, our Board of Directors voted in favor of extending the term of the Anderson Note until April 30, 2005. Ms. Anderson resigned as our President and membercertain of our Board of Directors on September 3, 2004. As of March 15, 2005, Ms. Anderson has repaid the outstanding balance of the Anderson Note.
Crossman Loan
In February 2003, we entered into two separate loan agreements with Marc Crossman, then a member of our board of directorsstockholders, Hubert Guez, Paul Guez and now also our Presidenttheir affiliated companies, including Azteca, AZT International de CV, or AZT, and Chief Financial Officer, whereby Mr. Crossman loaned us an aggregate of $500,000. Our disinterested directors approved the loans from Mr. Crossman. In October 2004, upon approval by the Audit Committee, the parties executed an Amended and Restated Promissory Note and Security Agreement, or Restated Note, regarding the repayment of the aggregate principal amount of $500,000 plus unpaid and accrued interest and interest thereon at the default interest rate of 10%. In addition to repayment of unpaid accrued interest and interest thereon, the Restated Note bears interest at a rate of 10% and calls for repayment of principal and interest on a weekly basis over a nine month period. We may prepay the Restated Note, at any time, without penalty during the nine months. The Restated Note is secured by a subordinated security interest in all goods, equipment, inventory, contract rights and general intangibles. The balance outstanding as of November 27, 2004 is $439,000.
Purchases of Goods and Services
As required under the terms of the investment by Commerce Investment Group LLC, or Commerce. By virtue of this relationship, we have entered into the following agreements, at various times, with Hubert Guez, Paul Guez and their affiliated companies, Azteca, AZT and Commerce, entities in which Hubert Guez and Paul Guez have controlling interests. These entities are no longer related parties as they are not officers, directors or greater than five percent stockholders nor do they have the ability to control us, directly or indirectly.
The following table represents charges from the affiliated companies pursuant to Joe's relationship with them, including its affiliates,discontinued operations, as follows:
| 2007 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||||
Continuing operations | |||||||||||
Purchase order arrangements | $ | 10,727 | $ | 12,845 | $ | 2,560 | |||||
Verbal facilities arrangement | — | 256 | 315 | ||||||||
Discontinued operations | |||||||||||
Supply agreement / Purchase order arrangements | — | 16,851 | 60,898 | ||||||||
Earn-out due to Sweet Sportswear | — | 248 | 1,323 | ||||||||
Verbal facilities agreement | — | 301 | 724 | ||||||||
Principal and interest on note payable | — | 1,088 | 1,057 | ||||||||
Supply and Distribution agreement | — | — | 639 |
Continuing Operations—Purchase Order Arrangement
Until August 2007, we used AZT as a supplier on a purchase order basis for certain of our Innovo, Joe’s,Joe's® denim products produced in Mexico. Under this arrangement, we advanced the funds to purchase raw materials, which primarily includes fabric, anticipated for production of our products and IAA subsidiaries eachpaid for the production cost less credit for the advances on raw materials. We purchased its craft goodsthese products in various stages of production from partial to completed finished goods. In August 2007, we began using a different third party vendor for the production of our products in Mexico.
Continuing Operations—Verbal Facilities Arrangement
Until mid-July 2006, we used space for our headquarters and certain distributionprincipal executive offices under a verbal month-to-month arrangement with Azteca. Under this arrangement, we paid to Azteca a monthly fee for allocated expenses associated with our use of office and operational services from Commercewarehouse space, including a fee charged on a per unit basis for inventory, and its affiliatesexpenses in 2004, 2003connection with maintaining such office and 2002. The services purchasedwarehouse space. These allocated expenses included, but were not limited to, accounts receivable collections, certain general accounting functions, inventory managementrent, security, office supplies, machine leases and distribution logistics. The following schedule represents Innovo’s, Joe’sutilities. In mid-July 2006, we moved our headquarters and IAA’s purchases from Commerceprincipal
executive offices to nearby office and its affiliates during 2004, 2003warehouse space and 2002:
|
| (in thousands) |
| |||||||
|
| 2004 |
| 2003 |
| 2002 |
| |||
Supply agreement |
| $ | 67,812 |
| $ | 43,993 |
| $ | 12,273 |
|
Distribution agreement |
| 203 |
| 127 |
| 107 |
| |||
Verbal facilities agreement |
| 886 |
| 343 |
| 25 |
| |||
Interest on related party note payable |
| 863 |
| 482 |
| — |
| |||
Discontinued craft & accessories business segment Supply and Distribution agreement |
| 3,019 |
| 3,741 |
| 4,164 |
| |||
Earn-out due to Sweet Sportswear |
| 1,566 |
| 694 |
| — |
| |||
37
Additionally, we are charged an allocation expense from Commerce for expenses associated with us occupying space in Commerce’s Commerce, California facility and the use of general business machines and communication services. These expenses are included inaccordingly, no longer have any obligation to pay Azteca under the verbal facilities agreement line above. We also pay to Sweet Sportswear pursuant to an earn-out agreement in connection with the Blue Concept Division acquisition. The earn-out to Sweet Sportswear, an entity owned by Hubert Guez and Paul Guez, is calculated on a quarterly basis equal to 2.5% of the gross sales solely attributable to American Eagle Outfitters, Inc., or AEO. This earn-out agreement was additional consideration for the acquisition of the Blue Concept Division.arrangement.
Discontinued Operations—Supply Agreement/Purchase Order Arrangements
As part of the acquisition of the Blue Concept Division from Azteca Production International, Inc., or Azteca, inIn July 2003, IAA and AZT International SA de CV, a Mexico corporation and wholly owned subsidiary of Azteca, or AZT, entered into a two-year, renewable, non-exclusive Supply Agreement for products to be sold by the Blue Concept Division. In addition to the customary obligations, the Supply Agreement requires that AZT will receive payment immediately upon receipt of invoices for our purchase orders and that AZT will charge a per unit price such that IAA will have a guaranteed profit margin of 15 percent on a “per unit” basis. In addition, AZT is responsible for all quality defects in merchandise manufactured. IAA also utilizes AZT to distribute goods manufactured under the Supply Agreement, and has AZT invoice and collect payments from AEO, for goods manufactured in Mexico.
We believe that all the transactions conducted between us and Commerce were completed on terms that were competitive and at market rates. As of November 27, 2004 and November 29, 2003, the balances due (to) and from Commerce and/or related affiliates are as follows:
|
| (in thousands) |
| ||||
|
| 2004 |
| 2003 |
| ||
Commerce Investment Group |
| $ | 1,557 |
| $ | (446 | ) |
AZT International SA de CV |
| 56 |
| 56 |
| ||
Owenslab Jean, LLC |
| 61 |
| — |
| ||
Team Pro International |
| 15 |
| — |
| ||
Blue Concepts, LLC/Yanuk |
| 58 |
| — |
| ||
|
| $ | 1,747 |
| $ | (390 | ) |
The approximate $1.6 million aggregate balance due from Commerce in the above table represents and includes advances against Commerce’s work in progress (WIP) based on purchase orders issued by Innovo Group. As of December 6, 2004, Commerce’s estimated WIP which includes raw material such as fabric and trim, based on purchase orders received by us, is approximately $6.8 million. Upon delivery of these finished goods, the balance due from Commerce of approximately $1.6 million is expected to be applied against any resulting payables due to Commerce. We have purchased the majority of our products from Commerce and its affiliates. The loss of Commerce and its affiliates could have a material adverse impact on us.
Blue Concept Division Acquisition
On July 17, 2003, IAA entered into an asset purchase agreement, or Blue Concept APA, with Azteca, Hubert Guez and Paul Guez, wherebyour IAA subsidiary acquired the division known as the Blue Concept division, or the Blue Concept Division of Azteca. TheAzteca, a division which sold denim apparel primarily to American Eagle Outfitters, Inc., or AEO. Simultaneous with the Blue Concept Division sells primarilyAPA, IAA entered into a non-exclusive Supply Agreement with AZT for the purchase of denim jeansproducts to be sold to AEO, a national retailer. Hubert Guez and Paul Guez, two of our substantial common stockholders and parties to the APA, together have a controlling interest in Azteca.
38
Pursuant towhich expired on July 17, 2005. Under the terms of the Supply Agreement, AZT agreed that the purchase price on the products supplied would provide for a margin per unit of 15 percent. After the expiration of the supply agreement, we continued to use AZT as a supplier on a purchase order basis for our AEO products under similar terms. Upon completion of the sale of IAA's private label division to Cygne Designs, Inc., or Cygne, as discussed in "Note 15—Discontinued Operations" of our Initial Report, Cygne assumed $2,500,000 of the amount owed to AZT under this purchase order supply arrangement.
Discontinued Operations—Earn-out Due to Sweet Sportswear LLC
The Blue Concept APA IAA paid $21.8 millionalso provided for the Blue Concept Division, subjectcalculation and payment, on a quarterly basis, to adjustment as noted below. PursuantSweet Sportswear LLC, an entity owned by Hubert and Paul Guez, of an amount equal to the APA, IAA employed all2.5 percent of the existing employeesgross sales solely attributable to AEO. In May 2006, Cygne assumed the future liability associated with this payment.
Discontinued Operations—Principal and Interest on Note Payable
We originally incurred long-term debt in connection with the purchase of the Blue Concept Division but did not assume any of the Blue Concept Division’s or Azteca’s existing liabilities. The purchase price was paid through the issuance offrom Azteca. In July 2003, IAA issued a seven-year unsecured, convertible promissory note in the principal amount of $21.8 million, or the Blue Concept Note. The Blue Concept Note bore interest at a rate of six percent and required payment of interest only during the first 24 months and then was fully amortized over the remaining five year period. On March 5, 2004, in accordance with the APA and Nasdaq rules, we heldafter stockholder approval, a special meetingportion of our stock holders to convert up to $12.5 million of the debt into up to 4,166,667 shares of our common stock. The conversion was approved by our common stockholders and as a result, Azteca and the Guez brothers have initially been issued 3,125,000 shares of our common stock at a conversion price of $4.00 per share, or the Azteca Conversion Shares, with the possible issuance of up to 1,041,667 additional shares of common stock upon the occurrence of certain contingencies described in the Blue Concept APA. As a result of this conversion, the Blue Concept Note was reduced from $21.8 million to $9.3 million.
converted into 3,125,000 shares of common stock at a value per share of $4.00. In May 2006, Cygne assumed the event that sales of the Blue Concept Division fell below $70 million during the first 17 month period, or Period I, following the closing of the acquisition, or $65 million during the 12 month period, or Period II following Period I, certain terms of the APA allow for a reduction in the purchase price through a decrease in theremaining principal balance of the Blue Concept Note and/or the return of certain locked-up shares of our common stock. Period I ended on December 31, 2004 and the revenue target for Period I was met, resulting in no reduction in the purchase price.
In the event the principal amount of theAzteca released us from any and all remaining obligations. The Blue Concept Note needs to be reduced beyond the outstanding principal balance, then an amount of the locked-up shares equal to the balance of the required reduction shall be returned to us. For these purposes, the locked-up shares will be valued at $4.00 per share. Under the Blue Concept APA, we had additional protections during the 12 month period following the closing that havehas been removed.
In the event the revenues of the Blue Concept Division decrease to $35 million or less during Period II, IAA will have the right to sell the purchased assets back to Azteca, and Azteca will have the right to buy back the purchased assets for the remaining balance of the Blue Concept Note and any and all locked-up shares will be returned to us.
In addition, IAA pays to Sweet Sportswear, an entity owned by Hubert Guez and Paul Guez who were parties to the Blue Concept asset purchase agreement, an amount equal to 2.5% of IAA’s net revenues generatedreclassified as a result of sales to AEO.
As part of the transaction, IAA and AZT, entered into a two-year, renewable, non-exclusive supply agreement, or Supply Agreement, for products to be sold by our Blue Concept Division.discontinued operation liability. Under the terms of the Supply Agreement, we have agreed to market and sell the products to be purchased from AZT to certain of our customers, more particularly the customers of our Blue Concept Division. Inoriginal asset purchase agreement, in addition to the customary obligations,shares previously issued, we issued on May 17, 2006 an additional 1,041,667 shares of our common stock as a result of its average stock price trading at less than $3.00 per share for the period between February 10, 2006 and March 12, 2006. This share issuance has been recognized in the Statement of Stockholders' Equity.
Discontinued Operations—Craft and accessories—Supply and Distribution Agreement required that: (i)
In August 2000, we will submit written purchase ordersentered into a supply agreement and a distribution agreement for our craft products with Commerce. In connection with the sale of the craft inventory and certain other assets of our Innovo Inc. subsidiary in May 2005, both the supply agreement and the distribution agreement were terminated.
Aggregate balances by entities
As of November 30, 2007 and November 25, 2006, respectively, the balances due (to) or due from these related parties and certain of their affiliates are as follows:
| 2007 | 2006 | |||||
---|---|---|---|---|---|---|---|
AZT International SA de CV | $ | 1,800 | $ | 4,994 | |||
Commerce Investment Group | (2,822 | ) | (2,822 | ) | |||
Sweet Sportswear, LLC | (4 | ) | (4 | ) | |||
Cygne Design Inc. | (5 | ) | (5 | ) | |||
$ | (1,031 | ) | $ | 2,163 | |||
The AZT balance represented the balances due as a result of production efforts in Mexico as of November 30, 2007. Upon completion of the sale of our private label division to AZT on a monthly basis specifying (x)Cygne, as discussed in "Note 15—Discontinued Operations" of our Initial Report, Cygne assumed the productsaggregate liability in the amount of $2,500,000 owed to Commerce and its affiliates. The balance due to Commerce represents the adjusted balance remaining that we continue to be supplied, and (y) a specified shipping dateobligated for products to be shipped; (ii) we will give AZT reasonable time allowances upon placing its purchase orders with AZT prior to deliveryafter the completion of the products by AZT; (iii) AZT will receive payment immediately upon receipt by ustransaction with Cygne. The balance of invoices for our purchase orders; (iv)$5,000 due to Cygne represented the amount we will haveowed to Cygne as a guaranteed profit margin onresult of certain chargebacks to former customers.
Current Related Party
JD Holdings Inc.
On February 7, 2001, we acquired a “per unit” basis of 15%; and (v) the products to be supplied shall be subject to quality control measures by us and by the customer of the Blue Concept Division. IAA also utilizes AZT to distribute goods manufactured under the Supply Agreement and until such time that we can establish a Mexican subsidiary to invoice and collect payments from AEO, temporarily has AZT invoice and collect payments from AEO for goods manufactured in Mexico.
Management and the board of directors entered into the acquisition of the Blue Concept Divisionlicense for the following reasons: (i) the ability to enter into an acquisition with a seller with which we have a long-standing relationship; (ii) the ability to acquire a profitable business that has a financial history of producing
39
conservative profit margins with significant revenues; (iii) a strong customer relationship with AEO; (iv) the manufacturing relationships to produce products effectively and efficiently; and (v) the ability to acquire the personnel and talent of a profitable business. Further, although there can be no assurance the Blue Concept Division is expected to increase our revenue growth and is expected to maintain positive cash flows. In fiscal 2004, net sales to AEO attributablerights to the Blue Concept Division accounted for $62,658,000 or 60% of our overall net sales.
Joe's® brand from JD Design LLC,
Pursuant to which was subsequently merged with and into JD Holdings. Under the license agreement, entered into with JD Design, LLC under which we obtained the license rightsHoldings was entitled to Joe’s Jeans, Joe’s is obligated to pay a 3% royalty of 3 percent on the net sales of all products bearinglicensed products. In October 2005, we granted JD Holdings the Joe’s Jeans or JD trademark or logo.right to develop the children's branded apparel line under an amendment to our master license agreement in exchange for a 5 percent royalty on net sales of those products. On October 25, 2007, in connection with the merger, the license agreement terminated.
As part of the consideration paid in connection with the completion of the merger, Mr. Dahan will be entitled to a certain percentage of the gross profit earned by Joe's in any applicable fiscal year until October 2017. See "Note 4—Merger Transaction" of our Initial Report for a further discussion on the merger agreement and the earn-out.
For fiscal 2004,2007 and 2006, the following table sets forth earn-out, royalties, fees and income paid in connection with the Joe's® brand.
| 2007 | 2006 | 2005 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| (in thousands) | ||||||||||
Expense (income): | |||||||||||
Joe's Jeans royalty expense | $ | 1,647 | $ | 1,363 | $ | 999 | |||||
Joes Kids license, royalty income | (88 | ) | (40 | ) | — | ||||||
indie Design fee | — | 39 | 42 |
As a result of Mr. Dahan's appointment as a director and executive officer and his ownership of approximately 24 percent of our total shares outstanding, an additional related party transaction occurred in the past fiscal 2003year. Mr. Dahan's brother is the managing member of a company Shipson LLC, or Shipson, to whom we outsourced our E-shop operated on our Joe's Jeans website. We sold our Joe's® products to Shipson at wholesale price on normal and fiscal 2002, this amount totaled $548,000, $339,000customary terms and $277,000, respectively. Included in dueconditions similar to related partiesthose that we offer other customers to fulfill purchases by customers on the balance sheet are accrued royaltiesE-shop. As of $143,000November 30, 2007, Shipson owed $163,000 to us for purchase orders. Shipson no longer operates our E-shop.
In October 2006, we entered into a collateral protection agreement with JD Holdings in connection with the pledge of certain collateral to CIT Commercial Services, a unit of the CIT Group Inc., or CIT, for increased availability. Under the collateral protection agreement, we agreed to issue JD Holdings shares of its common stock in the event of a default under our agreements with CIT. In October 2007 in connection with the merger and $189,000 for fiscal 2004 and fiscal 2003, respectively.the release of the pledge by CIT, the collateral protection agreement was terminated.
9000 Sunset Office Space Sublease
Facility Lease Arrangements
We currently leaseOn March 3, 2006, our Audit Committee approved a related party transaction whereby we subleased, at our current rate, our executive office and storage space from a companyto an entity owned by Sam Furrow, ChairmanSuhail Rizvi, one of our directors, on a month-to-month basis. We believe that this transaction is in our best interest to reduce our expenses associated with lease commitments. The transaction amount of such sublease was less than $120,000 in any fiscal year.
Director Independence
Currently, the following members of our Board of Directors are considered "independent" under NASDAQ listing standards and as such term is defined in Knoxville, Tennessee.the rules and regulations of the SEC:
In March 2005, we moved from one facilitymaking its determination that the foregoing Directors are independent, the Board considered all relevant facts and circumstances. The Board considered the sublease of our office space to an entity owned by Mr. Furrow,Rizvi. The Board concluded that the sublease does not impact Mr. Rizvi's independence. We do not have any past or present members serving on our Audit Committee, Compensation and Stock Option Committee and Nominating and Governance Committee that are not considered to another facility also owned by Mr. Furrow. We lease approximately 5,000 square feet of office and warehouse space at a rate of approximately $2,500 per month. We are presently negotiating a formal written lease for the space.be independent.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires our directors, officers and persons who beneficially own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC on a timely basis. Directors, officers and greater than ten percent beneficial owners are required by the SEC’sSEC's regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of copies of such forms furnished to us and certain of our internal records, or upon written representations from officers, directors and greater than ten percent beneficial owners that no Form 5s were5 was required, we believe that during the year ended December 31, 2004,November 30, 2007, all Section 16(a) filing requirements applicable to our directors, officers and greater than ten percent beneficial owners were satisfied on a timely basis except as follows: one Form 4 for Samuel J. Furrow relating to one indirect purchase transaction by his spouse was inadvertently not timely filed, one Form 4 for Marc B. Crossman relating to one individual grant of stock option in a prior fiscal year for 2001 was inadvertently not timely filed, two Form 4s for Paul Guez relating to 30 individual sale transactions and in April 2005, two Form 4s relating to ten individual sale transactions for sales in 2004 were inadvertently not timely filed; one Form 4 for Innavation LLC relating to one individual sale transaction was inadvertently not timely filed.basis.
40
FEES PAID TO THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
For the fiscal years ended November 27, 200430, 2007 and November 29, 2003,25, 2006, E&Y billed the approximate fees as further described below.
Fees for audit services totaled approximately $480,500$574,000 for the year ended November 27, 200430, 2007 and $528,000$569,000 for the year ended November 29, 2003,25, 2006, including fees associated with the annual audit,
reviews of our quarterly reports on Form 10-Q, and assistance with and review of registration statements filed with the SEC including consents and comfort letters related to registration statements for equity issuances.issuances and our stock incentive plan.
Fees for audit-related services totaled approximately $12,000$0 for the year ended November 27, 200430, 2007 and approximately $63,000$97,800 for the year ended November 29, 2003.25, 2006. Audit related services for fiscal 2006 principally included assistance with internal control requirements under Section 404an audit and accounting consultations in connection with the disposition of the Sarbanes-Oxley Actassets of 2002, assistance with audit committee meetings and board meetings and consultation on transactions and acquisitions for fiscal 2003.our private label apparel division in May 2006.
Fees for tax services, including tax compliance and tax return preparation, tax advice, and tax planning, totaled approximately $129,100 for the year ended November 27, 2004 and approximately $123,000 for the year ended November 29, 2003 and approximately $83,000$107,000 for the year ended November 30, 2002.2007 and $95,000 for the year ended November 25, 2006.
There were no other fees for the yearyears ended November 27, 2004 or for the year ended30, 2007 and November 29, 2003.25, 2006, respectively.
The Audit Committee has adopted a policy which requires the Audit Committee’sCommittee's pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor’sauditor's independence. The Audit Committee approves such services on an on going basis prior to the incurrence of any such audit and non-audit services. The Audit Committee pre-approved all of the audit and non-audit services rendered by E&Y listed above.
The Audit Committee has determined that the services provided by E&Y were compatible with maintaining E&Y’s&Y's independence.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this proxy statement, the Board of Directors knows of no other business which may come before the annual meeting. If any other business is properly brought before the annual meeting, it is the intention of the proxy holders to vote or act in accordance with their best judgment with respect to such matters.
41
Attachment A
INNOVO GROUP INC.
2004 STOCK INCENTIVE PLAN
(WITH PROPOSED AMENDMENT TO SHARE AMOUNT)
A-1
Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the
A-2
Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.
A-3
A-4
(1) This number assumes approval of Proposal 3 at our annual meeting of stockholders to be held on June 9, 2005. In the event that this amendment to our 2004 Stock Incentive Plan in Proposal 3 is not approved, this number will remain at 1,265,172.
A-5
A-6
A-7
A-8
A-9
A-10
A-11
A-12
A-13
A-14
*Approved by the stockholders on June 3, 2004
A-15
INNOVO GROUP INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 6, 2008JUNE 9, 2005
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder (whose signature appears on the reverse side of Innovo Groupthis proxy card) of Joe's Jeans Inc., or the Company, hereby appoints Samuel J. Furrow, Jr., and Marc B. Crossman or either of them, with full power of substitution, as proxiesproxy to cast all votes, as designated below, which the undersigned stockholder is entitled to cast at the 20052008 annual meeting of stockholders to be held on Thursday, June 9, 2005,November 6, 2008, at 10:9:00 a.m. (local time) at the SofitelDoubletree Hotel, 8555 Beverly Boulevard, Los Angeles,5757 Telegraph Road, Commerce, California 9004890040 upon the following matters and any other matter as may properly come before the 20052008 annual meeting of stockholders or any adjournments thereof.
(1) Samuel J. Furrow |
| (2) Marc B. Crossman | (3) Joe Dahan | |||
| (4) Kelly Hoffman | (5) Thomas O'Riordan | (6) Suhail R. Rizvi | |||
(7) Kent Savage |
|
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITESTRIKE THAT NOMINEE’SNOMINEE'S NAME ONFROM THE SPACE PROVIDED BELOW.LIST ABOVE.)
oFORoAGAINSToABSTAIN
3. Proposal to approve an amendment to the 2004 Stock Incentive Plan.
oFORoAGAINSToABSTAIN
4.
oFORoAGAINSToABSTAIN
| o AGAINST | o ABSTAIN |
(continued from other side)
This proxy, when properly executed, will be voted as directed by the undersigned stockholder and in accordance with the best judgment of the proxies as to other matters.IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED “FOR”"FOR" THE NOMINEES LISTED IN PROPOSAL 1, “FOR”"FOR" PROPOSAL 2 “FOR” PROPOSAL 3 AND “FOR” PROPOSAL 4 IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER MATTERS.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE.
(continued and to be dated and signed on reverse side.)
(continued from other side)
I/we hereby revoke any other proxy to vote at the Annual Meeting, and hereby ratify and confirms all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. With respect to matters not known at the time of the solicitation hereof, said proxies are authorized to vote in accordance with their best judgment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”"FOR" THE NOMINEES LISTED IN PROPOSAL 1 “FOR”AND "FOR" PROPOSAL 2, “FOR” PROPOSAL 3 AND “FOR” PROPOSAL 4.2.
The undersignedI/we hereby acknowledgesacknowledge prior receipt of the notice of annual meeting of stockholders and proxy statement dated April 26, 2005,September 23, 2008, the Annual Report on Form 10-K and any amendments theretoAmendment No. 1 for the year ended November 27, 200430, 2007 and hereby revokesrevoke any proxy or proxies heretofore given. This proxy may be revoked at any time before it is voted by delivering to the Secretary of the Company either a written revocation of proxy or a duly executed proxy bearing a later date, or by appearing at the 20052008 annual meeting of stockholders and voting in person.
If you receive more than one proxy card, please sign and return all cards in the accompanying envelope.
|
| ||
Date: , 2008. | |||
Signature of Stockholder or Authorized Representative | |||
| |||
VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
oJoe's Jeans, Inc.
Voting by telephone or Internet is quick, easy and immediate.As a Joe's Jeans, Inc. stockholder, you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Daylight Saving Time, on November 5, 2008.
To Vote Your Proxy By Internet
www.continentalstock.com
Have your proxy card available when you access the above website. Follow the prompts to vote your shares.
To Vote Your Proxy By PhoneI PLAN TO ATTEND1-866-894-0537
Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares.
PLEASE DO NOT RETURN THE JUNE 9, 2005CARD BELOW IF YOU ARE VOTING ELECTRONICALLY OR BY PHONE.
To Vote Your Proxy By Mail
Mark, sign and date your proxy card below, detach it and return it in the postage-paid envelope provided.
PLEASE COMPLETE, DATETABLE OF CONTENTS
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
QUESTIONS AND SIGN THISANSWERS ABOUT THE PROXY MATERIALS AND RETURN IT PROMPTLYTHE ANNUAL MEETING
JOE'S JEANS INC. 5901 SOUTH EASTERN AVENUE COMMERCE, CALIFORNIA 90040
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO ENSURE ABE HELD ON THURSDAY, NOVEMBER 6, 2008QUORUM ATPROPOSAL 1
ELECTION OF DIRECTORS
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT
REPORT OF THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES.AUDIT COMMITTEEDELAY IN RETURNING YOURRELATED PARTY TRANSACTIONS
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OTHER BUSINESS TO BE TRANSACTED
JOE'S JEANS INC. PROXY MAY SUBJECT THE COMPANYFOR ANNUAL MEETING OF STOCKHOLDERS TO ADDITIONAL EXPENSE.BE HELD ON THURSDAY, NOVEMBER 6, 2008