UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
¨ | Confidential, for Use of the Commission Only |
(as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to | §240.14a-12 |
THE WET SEAL, INC.
(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):
x | 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: |
¨ | Fee paid previously with preliminary materials. |
¨ | 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. |
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(2) | Form, Schedule or Registration Statement No.: |
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(4) | Date Filed: |
THE WET SEAL, INC.
26972 Burbank
Foothill Ranch, California 92610
June 17, 2005
May 3, 2006
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of The Wet Seal, Inc. to be held at The Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa,Island Hotel, 690 Newport Center Drive, Newport Beach, California 92660, at 10:00 a.m., localPacific time, on Wednesday, July 20, 2005.
Tuesday, June 6, 2006.
During the Annual Meeting, the matters described in the accompanying Proxy Statement will be considered. In addition to the formal items of business to be brought before the Annual Meeting, there will be a report regarding the progress of theour company and there will be an opportunity to ask questions of general interest to you as a stockholder.
I hope you will be able to join us at the Annual Meeting. Whether or not you expect to attend, you are urged to sign and return the enclosed proxy card in the envelope provided in order to make certain that your shares will be represented at the Annual Meeting.
Sincerely,
|
HENRY Chairman of the Board of Directors |
THE WET SEAL, INC.
26972 Burbank
Foothill Ranch, California 92610
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JULY 20, 2005TO BE HELD ON
10:00 a.m.JUNE 6, 2006
Notice is hereby given that the Annual Meeting of Stockholders (the “Annual Meeting”“Annual Meeting”) of The Wet Seal, Inc. (the “Company”“Company”) will be held at The Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa,Island Hotel, 690 Newport Center Drive, Newport Beach, California 92660, on Wednesday, July 20, 2005Tuesday, June 6, 2006 at 10:00 a.m., local time, or such other time and place to whichPacific time. At the Annual Meeting mayyou will be adjourned or postponed,asked to consider and vote upon:
1. |
The election of a Board of Directors consisting of |
The ratification of the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as independent auditors of the Company for fiscal year |
Any other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. |
The Board of Directors has fixedIf you owned Class A common stock at the close of business on June 3, 2005 as the record date for the determinationApril 19, 2006, you may vote at this meeting or any adjournment or postponement thereof. A list of the stockholders entitled to notice of, and to vote at, the Annual Meeting. A list of such stockholders will be available for examination by any stockholder for any purpose germane to the Annual Meeting, during normal business hours, at the principal executive offices of the Company for a period of ten days prior to the Annual Meeting.
To assure that your shares will be represented at the Annual Meeting, please sign and promptly return the accompanying proxy card in the enclosed envelope. You may revoke your proxy at any time before it is voted.
If you have any questions about the proposals, including the procedures for voting your shares, please contact Douglas C. Felderman,John J. Luttrell, the Executive Vice President and Chief Financial Officer of the Company, at (949) 699-3919.699-3918.
BY ORDER OF THE BOARD OF DIRECTORS
JOEL N. WALLER
President and Chief Executive Officer
Foothill Ranch, California
Dated: June 17, 2005May 3, 2006
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26972 Burbank
Foothill Ranch, California 92610
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished by the Board of Directors of The Wet Seal, Inc., a Delaware corporation (the “Company”“Company”), in connection with the solicitation of proxies for use at the Annual Meeting of Stockholders of the Company (the “Annual Meeting”“Annual Meeting”) to be held at The Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa,Island Hotel, 690 Newport Center Drive, Newport Beach, California 92660, on Wednesday, July 20, 2005,Tuesday, June 6, 2006, beginning at 10:00 a.m., localPacific time, and at any adjournments or postponements thereof. This Proxy Statement and related materials are first being mailed to stockholders on or about June 20, 2005.
May 5, 2006.
The Annual Meeting has been called to consider and vote upon:
1. | The |
The ratification of the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as independent auditors of the Company for fiscal year |
Any other business as may properly come before the Annual Meeting. |
Number of Common Shares Outstanding; Voting Rights
Only holders of record of the Company’s common stock at the close of business on June 3, 2005,April 19, 2006, the record date for this Proxy Statement, are entitled to receive notice of, and to vote at, the Annual Meeting. OnAt the close of business on that date, there were 44,630,14174,571,412 shares of the Company’s Class A Common Stock, $0.10 par value per share, issued and outstanding. On that date, no shares of the Company’s Class B Common Stock, $0.10 par value per share, were issued and outstanding. There are currently no500,000 shares of common stockClass A Common Stock held as treasury stock. Holders of Class A Common Stock are entitled to one vote per share. There is no cumulative voting. While the Company has 24,6009,441 shares of Series C Convertible Preferred Convertible Stock issued and outstanding, holders of the Series C Convertible Preferred Stock are not entitled to vote on the matters to be presented at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the shares issued and outstanding and entitled to vote is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the Annual Meeting. Broker non-votes relate to shares of Class A Common Stockcommon stock that are not voted by the broker or other nominee who is the record holder of the shares of Class A Common Stockcommon stock because the broker or nominee has not been instructed by the beneficial owner to vote and the broker or nominee does not have the discretionary authority to vote on the matter.
Assuming that a quorum is present, (i) the affirmative vote of the holders of a majority of the outstanding shares entitled to vote at the Annual Meeting is required to approve the amendment to the Company’s Restated Certificate of Incorporation, (ii) the affirmative vote of the holders of a majority of the outstanding shares present
or represented by proxy and entitled to vote at the Annual Meeting is required to (A)(i) elect the nominees to the Board of Directors and (B)(ii) ratify the appointment of the independent auditors and (iii) the affirmative vote of the majority of the votes cast at the Annual Meeting is required to approve the amendment to the 2005 Stock Incentive Plan.auditors.
Voting Procedures; Abstentions; Non-Votes
The shares represented by each properly executed unrevoked proxy received in time for the Annual Meeting will be voted in accordance with the instructions specified therein. In the absence of instructions, each proxy will be votedFOR all sixeight nominees andFOR Proposals 1,Proposal 2 and 4 and will be voted in accordance with the discretion of the proxy holders upon all other matters which may properly come before the Annual Meeting.
Pursuant to Delaware law, abstentions are treated as present and entitled to vote for purposes of determining a quorum at the Annual Meeting, and therefore would have the effect of a vote against a proposal.
Brokers have discretionary authority to vote on Proposal 1 (Amendment to the Restated Certificate), Proposal 3 (Election of Directors) and Proposal 42 (Ratification of Independent Auditors) and thus broker non-votes will not result on these proposals. Brokers do not have discretionary authority to vote on Proposal 2 (Amendment to the Stock Incentive Plan) and a broker non-vote on this proposal is considered not entitled to vote on that matter and thus is not counted in determining whether a proposal requiring approval of a majority of the shares present or represented by proxy and entitled to vote has been approved.
Any proxy received by the Company may be subsequently revoked by the stockholder at any time before it is voted at the Annual Meeting by delivering a subsequent proxy or other written notice of revocation to the Company at its principal executive offices or by attending the Annual Meeting and voting in person.
Delivery of Proxy Materials and Annual Report
Only one Proxy Statement, proxy card and the Annual Report of the Company on Form 10-K for the fiscal year ended January 29, 2005, as amended28, 2006 (the “2005“2006 Annual Report”Report”) are being delivered by the Company to multiple stockholders sharing an address, unless the Company receives contrary instructions. The Company will deliver, promptly upon written or oral request, a separate copy of this Proxy Statement and accompanying materials to stockholders at a shared address to which a single copy was delivered.
A stockholder who wishes to receive a separate copy of this Proxy Statement, proxy card or the 20052006 Annual Report now or in the future, or stockholders sharing an address who are receiving multiple copies of proxy materials and wish to receive a single copy of such materials, should submit a request to Investor Relations at (949) 699-4804, or Investor Relations, The Wet Seal, Inc., 26972 Burbank, Foothill Ranch, California 92610.
This Proxy Statement and the 20052006 Annual Report are available on the Company’s website at http://www.wetsealinc.com. Information on the Company’s website, other than this Proxy Statement, form of proxy, the Company’s Business Ethics Policy and Code of Conduct, the Company’s Code of Ethics Policy for its Chief Executive Officer and Chief Financial Officer and the charters of the Company’s Audit Committee, Compensation/OptionCompensation Committee and Nominating and Corporate Governance Committee are not part of the Company proxy soliciting materials.
CHARTER AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR CLASS A
COMMON STOCK
Purpose of the Share Increase Amendment
Our Restated Certificate of Incorporation currently permits us to issue up to 162,000,000 shares of capital stock, of which 2,000,000 shares are designated as preferred stock, having a par value of $0.01 per share, 150,000,000 shares are designated as Class A Common Stock, having a par value of $0.10 per share, and 10,000,000 shares are designated as Class B Common Stock, having a par value of $0.10 per share.
On May 12, 2005, the Company’s Board of Directors approved, subject to stockholders approval, an amendment to the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock from 150,000,000 to 300,000,000 (the “Certificate Amendment”). In order to effect this change, the total number of shares of capital stock authorized in the Company’s Restated Certificate of Incorporation would be increased from 162,000,000 to 312,000,000 and the total number of shares of common stock authorized in the Company’s Restated Certificate of Incorporation would be increased from 160,000,000 to 310,000,000. At the Annual Meeting, the Company’s stockholders will be asked to approve the Certificate Amendment.
As of the date of this Proxy Statement, we have 44,630,141 shares of Class A Common Stock issued and outstanding. We have an additional 87,537,591 shares of Class A Common Stock reserved for issuance under our existing stock incentive plans and convertible securities issued in our private placement financing entered into since May 2004. The principal purpose of the Certificate Amendment is to authorize additional shares of Class A Common Stock to be available for issuance in the event that the Board of Directors determines that it is in the best interests of the Company to raise additional capital through the sale of securities, to effect future stock dividends, stock splits or recapitalizations, to acquire another company or its business or assets through the issuance of securities, to establish a strategic relationship with a corporate partner through the exchange of securities or for issuance under the Company’s stock incentive plans. The additional shares would also be available in connection with any anti-dilution protection afforded to the holders of the Company’s securities.
The Board of Directors believes that approval of the Certificate Amendment to increase the authorized shares of capital stock is necessary to provide the Company with the flexibility to pursue the opportunities described above without the added delay and expense of having to convene a meeting of stockholders. If the Certificate Amendment is adopted, 150,000,000 additional shares of Class A Common Stock will be available for issuance by the Company in the discretion of the Board of Directors without any further stockholder approval, although certain issuances of shares may require stockholder approval in accordance with the rules and regulations of our principal trading market, The NASDAQ National Market. The Company has no present plans or proposals to issue the additional shares of Class A Common Stock.
The text of the Certificate Amendment is attached to this Proxy Statement as Exhibit A. The Certificate Amendment will become effective upon its filing with the Secretary of State of the State of Delaware, which is expected to occur promptly after stockholder approval of this proposal.
Approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE CERTIFICATE OF AMENDMENT TO THE COMPANY’S RESTATED CERTIFICATE OF INCORPORATION.
APPROVAL OF AMENDMENT NO. 1 TO THE WET SEAL, INC. 2005 STOCK INCENTIVE PLAN
Proposed Amendment to Increase Shares Authorized
The Wet Seal, Inc. 2005 Stock Incentive Plan (the “Plan”) was originally adopted by the Board of Directors in November 2004 and approved by the stockholders in January 2005, and a total of 10,000,000 shares of the Company’s Class A Common Stock are currently authorized for issuance thereunder.
The Company’s Board of Directors has adopted, subject to stockholder approval, an amendment to the Plan to increase the number of shares of Class A Common Stock authorized for issuance under the Plan by 2,500,000 shares of Class A Common Stock (the “Plan Amendment”).
As of June 3, 2005, the record date for the Annual Meeting, there have been 4,800,000 shares of restricted stock and performance shares granted under the Plan, leaving only 5,200,000 shares available for future grants under the Plan. These grants have been made to our President and Chief Executive Officer, one of our Executive Vice Presidents and our non-employee directors. In the near term, we anticipate granting additional restricted shares in connection with the hiring or appointment of individuals, as well as company management who will assist us in returning the Company to profitability, including Michael Gold who has assisted the Company with its merchandising initiatives.
In order to qualify for deductibility under Section 162(m) of the Code, the amendment to the Plan, including, without limitation, the performance goals for determining performance awards set forth in the Plan with respect to the additional reserved shares, must be approved by the Company’s stockholders. In addition, we are seeking your approval of the amendment to the Plan pursuant to NASD Rule 4350 which requires the Company to obtain stockholder approval when a stock option plan is amended.
The full text of the Plan Amendment is set forth as Exhibit B to this Proxy Statement. A general description of the principal terms of the Plan, as amended by the Plan Amendment, is set forth below. The summary, however, does not purport to be a complete description of all the provisions of the Plan. Any stockholder of the Company who wishes to obtain a copy of the Plan may do so upon the written request of the Corporate Secretary at the Company’s principal executive offices located at 26972 Burbank, Foothill Ranch, California 92610.
Summary of the Plan
Number of Shares
Subject to adjustment for certain corporate events, the total of the number of shares of Class A Common Stock which shall be available for the grant of awards (including incentive stock options) under the Plan shall not exceed 10,000,000 shares (12,500,000 shares if the Plan Amendment is approved) of Class A Common Stock; provided, that, for purposes of this limitation, any Class A Common Stock subject to an option which is canceled or expires without exercise shall again become available for award under the Plan. Upon forfeiture of awards in accordance with the provisions of the Plan and the terms and conditions of the award, such shares shall again be available for subsequent awards under the Plan. Subject to adjustment in accordance with the Plan, no employee shall be granted, during any one (1) year period, options, or any other awards eligible for grant under the Plan, to purchase more than 10,000,000 shares of the Company’s Class A Common Stock, subject to availability under the Plan. Shares of Class A Common Stock available for issuance or distribution under the Plan shall be authorized and unissued shares, treasury shares or shares reacquired by us in any manner.
Administration
The Compensation/Option Committee (the “Committee”) of the Company’s Board of Directors administers the Plan. The Committee is currently comprised of Sidney M. Horn, Harold D. Kahn, Kenneth M. Reiss and Henry D. Winterstern, each of whom 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 (the “Exchange Act”), and are also outside directors within the meaning of Section 162(m) of the Code. The Committee (i) approves the selection of participants, (ii) determines the type of awards to be made to participants, (iii) determines the number of shares of Class A Common Stock subject to awards, (iv) determines the terms and conditions of any awards granted thereunder (including, but not limited to, any restriction and forfeiture conditions on such awards) and (v) has the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements entered into thereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any award in the manner and to the extent it shall deem desirable to carry it into effect.
Eligibility
Employees, officers, directors and consultants of the Company and the Company’s subsidiaries selected by the Committee are eligible to receive grants of awards under the Plan. Only employees of the Company and the Company’s subsidiaries may be granted incentive stock options.
Awards
Awards under the Plan may consist of options, stock appreciation rights, restricted common stock, restricted common stock units, performance shares, performance share units or cash bonuses.
Options
Both nonqualified stock options (“Nonqualified Stock Options”) and “incentive stock options” (“ISOs”) may be granted under the Plan, collectively referred to as the Options. The terms of any such Option shall be set forth in an Option agreement and shall be consistent with the following:
Exercise Price.The exercise price per share of the Company’s Class A Common Stock to be purchased pursuant to any Option shall be fixed by the Committee at the time such Option is granted and shall not be less than the fair market value of a share of Class A Common Stock on the date the Option is granted; provided, however, in the case of ISOs granted to an employee owning stock possessing more than 10% of the total combined voting power of all classes of shares of the Company and its subsidiaries, the price per share specified in an Option agreement shall not be less than 110% of the fair market value per share of Class A Common Stock on the date of grant.
Option Term.The term of each Option will be determined by the Committee, but may not exceed ten (10) years from the date of grant; provided, however, that in the case of ISOs granted to 10% stockholders, the term of such Option shall not exceed five (5) years from the date of grant.
Vesting.An Option shall vest and become exercisable at a rate determined by the Committee on the date of grant, with a minimum vesting period of one (1) year.
Method of Exercise.Options may be exercised, in whole or in part, by giving written notice of exercise to the Company in a form approved by us specifying the number of shares of Class A Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the exercise price. The exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of Class A Common Stock held by the optionee for at least six (6) months prior to exercise (or such longer or shorter period as may be required to
avoid a charge to earnings for financial accounting purposes) or the attestation of ownership of such shares, in either case, if so permitted by us, (iii) if established by us, through a “same day sale” commitment from the optionee and a broker-dealer selected by us that is a member of the National Association of Securities Dealers, or an NASD Dealer, whereby the optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased sufficient to pay for the total exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the total exercise price directly to us, (iv) through additional methods prescribed by the Committee or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. Options may not be exercised for fractional shares of the Company’s Class A Common Stock. A participant’s subsequent transfer or disposition of any Class A Common Stock acquired upon exercise of an Option shall be subject to any federal and state laws then applicable, specifically securities law, and the terms and conditions of the Plan.
Prohibition on Repricing.No Option granted under the Plan shall be amended to reduce the exercise price under such Option, or surrendered in exchange for a replacement Option having a lower purchase price per share; provided, that, this prohibition shall not restrict or prohibit any adjustment permitted under the Plan in connection with certain corporate events or changes in the Class A Common Stock.
Stock Appreciation Rights “SARs”
The Plan permits the Committee to award from time to time SARs to an eligible participant either at the time of the grant of an Option or thereafter by amendment to the option. A SAR is the right to receive the increase between the grant price and the market price of the Company’s Class A Common Stock on the date of settlement in Class A Common Stock or cash.
Restricted Common Stock
The Plan permits the Committee to award restricted Class A Common Stock under the Plan to eligible participants. The Committee may also award restricted Class A Common Stock in the form of restricted common stock units having a value equal to an identical number of shares of Class A Common Stock. Payment of restricted common stock units shall be made in Class A Common Stock or in cash or in a combination thereof (based upon the fair market value of the Class A Common Stock on the day the restricted period expires), all as determined by the Committee in its discretion. Restricted Class A Common Stock awards shall vest at a rate determined by the Committee on the date of grant, with a minimum vesting period of one (1) year. Vesting of restricted stock and restricted stock units may be subject to Performance Goals and otherwise structured as a Performance Award (see below).
Performance Awards
Under the Plan, the Committee has the authority to grant Performance Awards (as defined below) which provide participants with the right to an award based upon the achievement of one or more levels of performance required to be attained with respect to a Performance Goal (as defined below) set by the Committee during a Performance Period (as defined below) or the Performance Objective (as defined in the Plan). Performance shares may be granted in the form of actual shares of Class A Common Stock or common stock units having a value equal to an identical number of shares of Class A Common Stock. In addition, the Committee may make cash bonuses to participants based on the Performance Objectives established by the Committee (performance shares and performance cash bonuses collectively referred to as “Performance Awards”). The Plan contemplates that the following Performance Goals may be selected by the Committee and shall mean or 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 the Company’s attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after
tax) (each, a “Performance Goal”). 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. For purposes of the Plan, a “Performance Period” shall mean the calendar year, or such other shorter or longer period designated by the Committee, during which performance will be measured in order to determine a participant’s entitlement to receive payment of a Performance Award. The Committee shall establish the Performance Objective for each Performance Award, consisting of one or more business criteria permitted as Performance Goals under the Plan, one or more levels of performance with respect to each such criterion, and the amount or amounts payable or other rights that the participant will be entitled to upon achievement of such levels of performance. The Performance Objective shall be established by the Committee prior to or reasonably promptly following the inception of a Performance Period but, to the extent required by Section 162(m) of the Code, by no later than ninety (90) days after the commencement of the Performance Period or the day prior to the date on which 25% of the Performance Period has elapsed.
Subject to adjustment for certain corporate events, the maximum number of Performance Shares subject to any award to any individual who is a covered employee for purposes of Section 162(m) of the Code (“Covered Employee”) is 10,000,000, subject to availability under the Plan, 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 Class A Common Stock on the last day of the performance period). If the Performance Award is a cash bonus, a participant shall not be granted performance cash bonuses for all of the Performance Periods commencing in a calendar year that permit the participant, in the aggregate, to earn a cash payment in excess of $3,000,000 per calendar year.
A Performance Award to a participant who is a Covered Employee shall (unless the Committee determines otherwise) provide that in the event of 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 Committee shall determine. The Committee may reduce or eliminate the amount of payment with respect to any Performance Award to a Covered Employee notwithstanding the achievement of specified Performance Objectives, however, no such adjustments shall be made that would adversely impact a participant following a “Change of Control” (as defined in the Plan).
No payments will be made with respect to any Performance Award unless and until the Committee certifies the achievement of the Performance Goals.
Change of Control
Unless otherwise provided in an award agreement, upon the occurrence of a Change of Control (as defined in the Plan) in which awards are not terminated in accordance with the Plan, all Options, restricted stock and SARs granted prior to such Change of Control shall automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any other awards shall automatically lapse.
Adjustments
The Plan provides that in the event of certain corporate events or changes in the Class A Common Stock, awards and the number of shares under the Plan may be adjusted to reflect such event. Any such adjustment made to an ISO shall be made in accordance with Section 424(a) of the Code unless otherwise determined by the Committee.
Forfeiture
In the event of a serious breach of conduct by a participant or former participant (including, without limitation, any conduct prejudicial to or in conflict with the Company or any subsidiary), the Committee may (i) cancel any outstanding award granted to such participant or former participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within one (1) year following the exercise or payment of an award, require such participant or former participant to repay the Company any gain realized or payment received upon the exercise or payment of such award (with such gain or payment valued as of the date of exercise or payment).
Amendment and Termination
Our Board of Directors may terminate or amend the Plan in any respect at any time, except that no amendment will be made without stockholder approval if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and, except as otherwise provided in the Plan with respect to adjustments in connection with certain corporate events or changes in the Company’s Class A Common Stock, no amendment will be made that would adversely affect the rights of a participant without such participant’s written consent.
General Federal Tax Consequences
The following is a summary of the material federal tax consequences of receiving Options under the Plan and is based upon an analysis of the present provisions of the Code and the regulations promulgated thereunder, all of which are subject 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 or she works and/or resides. This summary is for general information 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 Options is included within the $1,000,000 limitation. However, to the extent that certain procedural requirements are met (e.g., the Plan is approved by the Company’s stockholders, grants are made by the Committee, the exercise price is equal to the fair market value of the underlying shares upon grant, etc.), gain from the exercise of Options should not be subject to the $1,000,000 limitation. We have attempted to structure the Plan in such a manner that the remuneration attributable to the 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.
Nonqualified Stock Options.An individual receiving Nonqualified 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 Nonqualified Stock Options over the exercise price thereof. In general, subject to the limitations set forth in Section 162(m) and discussed above, the Company is entitled to deduct from its 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 ISO 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. The company is not entitled to any
deduction on account of the grant of the ISOs 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 Class A Common Stock acquired pursuant to the exercise of an ISO under circumstances resulting in taxable compensation to the participant, subject to the limitations set forth in Section 162(m) and discussed above, in general, the Company should be entitled to a tax deduction equal to the amount treated as taxable compensation to the participant.
Section 280G of the Code.Under certain circumstances, the accelerated vesting or exercise of Options or the accelerated lapse of restrictions with respect to other awards in connection with a Change of Control (as defined in the Plan) might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions of Section 280G of the Code. To the extent it is so considered, the grantee may be subject to a 20% excise tax and the Company may be denied a federal income tax deduction.
The affirmative vote of the majority of the votes cast at the Annual Meeting will be required to approve this proposal.
Board Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL OF THE AMENDMENT TO THE 2005 STOCK INCENTIVE PLAN.
ELECTION OF DIRECTORS
In accordance with the Company’s Bylaws, as amended, the number of directors to constitute the Board shall be determined from time to time by resolution of the Board, provided, however, that the number of directors shall not be decreased to less than three directors nor increased to more than fifteen directors. Upon the expiration of the term of directors, nominees are elected to serve for a term of one year and until their respective successors have been elected and qualified. Each director shall hold office until the next regular meeting of the stockholders after such director’s election and until a successor is elected and has qualified, or until the earlier death, resignation, removal or disqualification of the director.
The Company’s Bylaws giveterms of the current directors, Messrs. Jonathan Duskin, Sidney Horn, Harold D. Kahn, Kenneth M. Reiss, Alan Siegel, Joel Waller, Henry D. Winterstern and Michael Zimmerman, expire upon the election and qualification of the directors to be elected at the Annual Meeting. The Board of Directors has nominated each of the current directors for reelection to the Board of Directors at the powerAnnual Meeting, to setserve until the number2007 Annual Meeting of directors at no less than three nor more than fifteen. The Company’s BoardStockholders.
Unless otherwise directed, the persons named in the proxy intend to vote all proxiesFORthe election of Directors currently has six members who are elected annually.
The six nominees forMessrs. Duskin, Horn, Kahn, Reiss, Siegel, Waller, Winterstern and Zimmerman to the Board of Directors are currentlyDirectors. The nominees have consented to serve as directors of the Company. The directors so elected will serve untilCompany if elected. If, at the nexttime of the Annual Meeting, any of Stockholdersthe nominees is unable or until his earlier resignation, retirement or removal. The Board of Directors knows of no reason why any nominee for director would be unabledeclines to serve as a director. Indirector, the event that any of them should become unavailable prior todiscretionary authority provided in the Annual Meeting, the proxiesenclosed proxy will be votedexercised to vote for a substitute nominee or nomineescandidate designated by the Board of Directors. The Board of Directors or the numberhas no reason to believe any of directors may be reduced accordingly.
The following table sets forth information regarding the nominees for director:will be unable or will decline to serve as a director.
Set forth below is certain information furnished to the Company by the director nominees, with ages as of April 19, 2006. There are no family relationships among any directors or executive officers of the Company.
Name and Age | Principal Occupation and Background | |
Jonathan Duskin Age: 38 | Mr. Jonathan Duskin has been a director of the Company since March 6, 2006. Since 2005, Mr. Duskin has served as a Managing Director and Partner at Prentice Capital Management, LP, an investment manager. From 2002-2005, Mr. Duskin was a Managing Director at S.A.C. Capital Associates LLC. From 1998 to 2002, Mr. Duskin was a Managing Director at Lehman Brothers Inc., and served as Head of Product Management and Chairman of the Investment Policy Committee within the Research Department. Mr. Duskin serves on the board of directors of Whitehall Jewelers, Inc., a retailer of fine jewelry. | |
Sidney M. Horn Age: 55 | Mr. Sidney M. Horn has been a director of the Company since January 27, 2005. Mr. Horn has been a partner at the law firm of Stikeman Elliot LLP since May 2000. From 1984 to May 2000, Mr. Horn was a partner at the law firm of Phillips & Vineberg LLP. Mr. Horn currently serves |
Harold D. Kahn Age: | Mr. Harold D. Kahn has been a director of the Company since January 27, 2005. Mr. Kahn is Chairman of the Compensation/Option Committee. Since February 2004, he has served as President of HDK Associates, a consulting company that advises financial and investment groups. From January 1994 to February 2004, Mr. Kahn served as Chairman and Chief Executive Officer of Macy’s East, a division of Macy’s. | |
Kenneth M. Reiss Age: | Mr. Kenneth M. Reiss has been a director of the Company since January 27, 2005. Mr. Reiss is Chairman of the Audit Committee. Prior to his retirement in June 2003, Mr. Reiss was a partner at the accounting firm of Ernst & Young, LLP, where he served as the lead auditor for several publicly traded companies, including Toys “R” Us, Inc., Staples, Inc. and Kenneth Cole Productions, Inc. Mr. Reiss serves on the board of directors of Eddie Bauer, Inc., a retailer of outerwear and footwear, and Guitar Center, Inc., a retailer of musical instruments. | |
Alan Siegel Age: | Mr. Alan Siegel has been a director of the Company since 1990. Mr. Siegel is the Chairman of the Nominating and Governance Committee. Mr. Siegel is a partner at the law firm of Akin Gump Strauss Hauer & Feld LLP, which provides legal services to the Company. Mr. Siegel serves on the board of directors of Thor Industries, | |
Joel N. Waller Age: | Mr. Joel N. Waller has been a director of the Company since December 30, 2004. Effective February 1, 2005, Mr. Waller was appointed President and Chief Executive Officer of the Company. From |
Henry D. Winterstern Age: | Mr. Henry D. Winterstern has been a director of the Company since August 18, 2004. Mr. Winterstern has been Chairman of the Board of Directors since November 8, 2004. Mr. Winterstern | ||
Michael Zimmerman Age: 35 | Mr. Zimmerman has been a director of the |
Election of the nominees to the Board of Directors requires the affirmative vote of the holders of a majority of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF EACH OF THE ABOVE NOMINEES.
The executive officers of the Company, as of the date of this Proxy Statement, who are not also directors are set forth below:
Name and Age | Principal Occupation and Background | |
Age: | Mr. | |
Dyan Jozwick Age: 48 | Ms. Dyan Jozwick has served as Chief Merchandise Officer for the Wet Seal division since May 2, 2006. Prior to joining the Company, from 1975 to 1995 and from July 1998 to April 2006, Ms. Jozwick served in various capacities, most recently as the Retail Senior Vice President and General Merchandise Manager at Robinsons-May Department Stores, a subsidiary of Federated Department Stores. From October 1995 to July 1998, Ms. Jozwick was the Executive Vice President of Sales, Merchandising and Production at Carole Little, Inc. | |
John J. Luttrell Age: 51 | Mr. John J. Luttrell has served as Executive Vice President, Chief Financial Officer and Corporate Secretary of the Company since December 12, 2005. Prior to joining the Company, from August 2001 to December 2005, Mr. Luttrell served as Senior Vice President or Executive Vice President and Chief Financial Officer of | |
| ||
Gary White Age: | Mr. Gary White has served as |
The primary responsibility of the Board of Directors is to foster the long-term success of the Company, consistent with representing the interests of the Company’s stockholders. In accordance with this philosophy, the Board of Directors has taken the following steps, among others, to reinforce the Company’s values by promoting responsible business practices and good corporate citizenship.
The Board of Directors continually reviews the relationships that each director has with the Company. The Board of Directors currently has sixeight members, fiveseven of whom the Board of Directors has affirmatively determined are not individuals having a relationship that, in the Board’s opinion, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and are therefore “independent” in accordance with Nasdaq National Market listing standards. The sole director that the Board of Directors has determined not to be “independent” in accordance with the foregoing standards is Joel N. Waller, the Company’s President and Chief Executive Officer.
The Board of Directors has affirmatively determined that each member of the Audit Committee, the Compensation/Option Committee and the Nominating and Governance Committee of the Board of Directors is “independent” in accordance with Nasdaq National Market listing standards and that each member of the Audit Committee is “independent” as required by the applicable rules and regulations promulgated under the Exchange Act.
Executive Sessions; Meetings with Management
The non-management members of the Board of Directors meet in executive session on a regular basis. The Audit Committee meets in executive session with the independent auditorsregistered accountants regularly. All other committees are given the opportunity to meet without management present as they deem necessary.
Senior members of management are invited to make presentations to the Board of Directors or committees to provide management insight into items being discussed by the Board of Directors or committees and to bring managers with high potential into contact with the Board of Directors. In addition, Board members have free access to all other members of management and employees of the Company.
Board and Committee Meeting Agendas
The Chairman of the Board of Directors establishes the agenda for each Board of Directors meeting. Any other member of the Board of Directors is free to suggest the addition of any other item(s). The chairpersons of the committees or other designated committee members coordinate committee meeting agendas with appropriate members of management. Henry D. Winterstern, sets the agenda for the meetings of the Compensation/Option Committee, which currently does not have a chairman. Other committee members are free to suggest additional agenda items.
The Company has adopted The Wet Seal, Inc. Business Ethics Policy and Code of Conduct that is applicable to all directors, officers and employees. The purpose of the Company’s Business Ethics Policy and Code of Conduct is to foster compliance with applicable laws affecting the Company and to set a standard for the Company’s expectations for business conduct. The Company’s Business Ethics Policy and Code of Conduct is filedset forth as an exhibitExhibit B to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004this Proxy Statement and is available on the Company’s website at http://www.wetsealinc.com.
The Company has also adopted a Code of Ethics Policy for its Chief Executive Officer and Chief Financial Officer to promote ethical conduct in the practice of financial management and corporate governance. The Code of Ethics Policy is available on the Company’s website at http://www.wetsealinc.com.
Meetings and Committees of the Board of Directors
Board of Directors Actions; Attendance
The Board of Directors met or took action by written consent 16seventeen times during the fiscal year ended January 29, 2005.28, 2006. Each of the members of the Board of Directors then in such position attended at least 75% of the Board of Directors meetings and thetheir respective committee meetings on which they served.
The Company’s informal policy is that all of its directors attend the annual meeting of stockholders unless a director gives prior notice to the Chairman of the Board of Directors of his inability to attend due to health or business reasons. All members of the Board of Directors then in office other than Stephen Gross, attended the 20042005 annual meeting of stockholders.
As of the date of this Proxy Statement, the Board of Directors has three standing committees: (1) the Audit Committee, (2) the Compensation/Option Committee and (3) the Nominating and Governance Committee.
From February 1, 2004 through August 18, 2004, the Company’sThe Company has an Audit Committee which was comprisedestablished in accordance with the applicable rules and regulations promulgated under the Exchange Act. For fiscal year 2005, the Audit Committee consisted of George Benter, Barry Entous, Walter LoebKenneth M. Reiss (Chairman), Sidney M. Horn and Wilfred Posluns. On August 18, 2004, Messrs. Entous and Benter retired fromHenry D. Winterstern, each of whom the Board of Directors while
had affirmatively determined was “independent” in accordance with the Nasdaq National Market listing standards and the applicable rules and regulations promulgated under the Exchange Act. On March 22, 2006, the composition of the Audit Committee changed and its current members are Mr. Kenneth M. Reiss (Chairman), Jonathan Duskin, Sidney M. Horn and Henry D. Winterstern, was appointed toeach of whom the Audit Committee on this
date. Messrs. Loeb and Posluns retired from the Board of Directors and the Audit Committee effective January 27, 2005. On this date, Kenneth M. Reiss and Sidney M. Horn were appointed to the Board of Directors and Audit Committee, with Mr. Reiss serving as chairman.
The Board of Directors has affirmatively determined that each member of the Audit Committee is “independent” in accordance with the Nasdaq National Market listing standards and the applicable rules and regulations promulgated under the Exchange Act.
Mr. Reiss, a certified public accountant with 38 years of experience in auditing public companies during his tenure at Ernst & Young LLP, has been determined by the Board of Directors to be the Audit Committee’s “financial expert” under the regulations of the Securities and Exchange Commission and to be “financially sophisticated” under Nasdaq listing standards. During the fiscal year ended January 29, 2005,28, 2006, the Audit Committee met or took action by written consent 6six times.
The Audit Committee is responsible for reviewing, as it shall deem appropriate, and recommending to the Board of Directors internal accounting and finance controls for the Company and accounting principles and auditing practices and procedures to be employed in the preparation and review of the Company’s financial statements. The Audit Committee is also responsible for recommending to the Board of Directors (i) independent registered public accountants to audit the annual financial statements of the Company and (ii) the scope of the audit to be undertaken by the accountants. The Charter of the Audit Committee, which was amended on May 28, 2003,November 15, 2005, is set forth onas Exhibit A attached to the Company’s proxy statement for its 2004 annual stockholder meetingthis Proxy Statement and is available on the Company’s website at http://www.wetsealinc.com.
Compensation/Option Committee Interlocks and Insider Participation
During the 2004 fiscal year, each of the following individuals served on the Company’s Compensation/Option Committee: Messrs. Benter, Howard Gross, Posluns and Winterstern. Other than Mr. Winterstern, each of these members resigned their appointment on or prior to January 27, 2004. On this date, each of Messrs. Horn, Kahn, Reiss and Siegel were appointed to the Company’s Compensation/Option Committee. On May 12, 2005, Mr. Siegel resigned from the Compensation/Option Committee.
There were no Compensation/Option Committee interlocks or insider participation during the fiscal year ended January 29, 2005.
The Company has a Compensation/Option Committee, consistingwhich consisted of Sidney M. Horn, Harold D. Kahn, Kenneth M. Reiss and Henry D. Winterstern during the fiscal year 2005, each of whom the Board of Directors had affirmatively determined was “independent” in accordance with Nasdaq National Market listing standards. On March 22, 2006, the composition of the Compensation/Option Committee changed and its current members are Harold D. Kahn (Chairman), Sidney M. Horn and Michael Zimmerman, each of whom the Board of Directors has affirmatively determined is “independent” in accordance with Nasdaq National Market listing standards. As of the date of this Proxy Statement, the Compensation/Option Committee has not appointed a chairman but plans to do so in the near future. During the fiscal year ended January 29, 2005,28, 2006, the Compensation/Option Committee met or took action by written consent 15four times.
The Compensation/Option Committee is responsible for establishing general compensation policies and specific compensation levels for the Company’s executive officers and is responsible for granting restricted stock, performance shares and stock options to executive officers, other key employees and consultants. See “Report of the Compensation/Option Committee on Executive Compensation.” The Charter of the Compensation/Option Committee as approved and ratified by the Board of Directors on May 12, 2005, is set forth on Exhibit C to this Proxy Statement and is available on the Company’s website at http://www.wetsealinc.com.
Nominating and Governance Committee
In January 2005, theThe Company formedhas a Nominating and Governance Committee, consistingwhich consisted of Alan Siegel (Chairman) and Harold D. Kahn during the fiscal year 2005, each of whom the Board of Directors had affirmatively determined was “independent” in accordance with the Nasdaq National Market listing standards. On March 22, 2006, the composition of the Nominating and Governance Committee changed and its current members are Alan Siegel (Chairman), Harold D. Kahn and Michael Zimmerman, each of whom the Board of Directors has affirmatively determined is
“independent” “independent” in accordance with the Nasdaq National Market listing standards. Due to its recent formation in January 2005,The Nominating and Governance Committee met or took action by written consent once during the fiscal year ended January 29, 2005, the Nominating and Governance Committee did not meet or take action by written consent.
28, 2006.
The Nominating and Governance Committee proposes to the Board of Directors nominees for election to the Board of Directors. The Nominating and Governance Committee identifies nominees through the personal and business relationships of the Company’s existing and former directors and management. In addition, on an as needed basis, the Nominating and Governance Committee will engage outside consultants to assist in the identification of nominees.
The Nominating and Governance Committee is also responsible for advising the Board of Directors with respect to Board composition, compensation, procedures and committees, and for recommending
to the Board of Directors a set of corporate governance principles and overseeing the compliance of the Board of Directors with such principles. The Charter of the Nominating and Governance Committee as approved and ratified by the Board of Directors on May 12, 2005, is set forth on Exhibit D to this Proxy Statement and is available on the Company’s website at http://www.wetsealinc.com.
NominationConsideration of Individuals to the Board of DirectorsDirector Nominees
Stockholder Nominees. The Nominating and Governance Committee will consider proposed nominees whose names areconsiders properly submitted to it by stockholders; however, it does not have a formal processstockholder nominations for such consideration. The Nominatingcandidates for membership on the Board of Directors as described below under “Identifying and Governance Committee has not adopted a formal consideration process because it believes that its informal consideration process has been adequate, given the historically small number of stockholder recommendations. The Nominating and Governance Committee intends to review periodically whether a more formal policy should be adopted.
Evaluating Nominees for Directors”. Any stockholder who desires to recommend a nominee for the Board of Directors must submit a letter addressed to the Secretary of the Company at 26972 Burbank, Foothill Ranch, California 92610, and which is clearly identified as a “Director Nominee Recommendation.”Recommendation”. All recommendation letters must identify the author as a stockholder and provide a brief summary of the candidate’s qualifications, as well as contact information for both the candidate and the stockholder. Any stockholder recommendations for the next2007 Annual Meeting must be submitted by December 15, 20052006 to assure time for meaningful consideration and evaluation of the nominees by the Nominating and Governance Committee.
Director Qualifications.In discharging its responsibilities to nominate candidates for election to the Board of Directors, the Nominating and Governance Committee has not specified any minimum qualifications for serving on the Board of Directors. However, the Nominating and Governance Committee’s criteria for selecting new directors includes possession of such knowledge, experience, skills, expertise and diversity as may enhance the Board of Directors’ ability to manage and direct the affairs and business of the Company, including, when applicable, as may enhance the ability of committees of the Board of Directors to fulfill their respective duties.
Identifying and Evaluating Nominees for Directors.The Nominating and Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. Candidates may come to the attention of the Nominating and Governance Committee through current Board members, professional search firms, stockholders or other persons. These candidates are evaluated at periodic meetings of the Nominating and Governance Committee as necessary and discussed by the members of the Nominating and Governance Committee from time to time. Candidates may be considered at any point during the year. As described above, the Nominating and Governance Committee considers properly submitted stockholder nominations for candidates for the Board of Directors. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the Nominating and Governance Committee. If any materials are provided by a stockholder in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Governance Committee.
Compensation/Option Committee Interlocks and Insider Participation
During the fiscal year ended January 28, 2006, each of the following individuals served on the Compensation/Option Committee: Messrs. Horn, Kahn, Reiss, Siegel and Winterstern. Mr. Siegel resigned from the Compensation/Option Committee on May 12, 2005. There were no Compensation/Option Committee interlocks or insider participation during the fiscal year ended January 28, 2006.
Any communications to the Board of Directors should be sent to it in care of the Secretary of the Company. There is no screening process, other than to confirm that the sender is a stockholder, and all stockholder communications which are received by the Secretary of the Company for the Board of Directors’ attention are forwarded to the Board of Directors with a copy to the Chairman of the Audit Committee.
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Upon recommendation of the Audit Committee, the Board of Directors proposes that the stockholders ratify the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, to serve as the independent auditors of the Company for the 2005 fiscal year until the Company’s annual meeting of stockholders in 2006. Deloitte & Touche LLP served as the independent auditors of the Company for the 20042005 fiscal year.
Neither the Company’s Restated Certificate of Incorporation, as amended, nor its Bylaws require that the stockholders ratify the selection of the Company’s independent auditors. We areThe Company is doing so because we believethe Company believes it is a matter of good corporate practice. If the stockholders do not ratify the selection, the Board of Directors and the Audit Committee will reconsider whether to retain Deloitte & Touche LLP, but may retain such independent auditors. Even if the appointment is ratified, the Board of Directors and the Audit Committee, in their discretion, may change the appointment at any time during the year if they determine that such change would be in the best interest of the Company and its stockholders.
Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting and will be available to make a statement if they desire and are expected to respond to appropriate inquiries from stockholders.
Principal Accountant Fees and Services
The fees incurred by the Company for Deloitte & Touche LLP’s services for fiscal year 2004, as set forth in the Company’s Proxy Statement dated June 17, 2005, included estimates which have been updated in this Proxy Statement to reflect final amounts of fees incurred. Such fees for fiscal year 2005 are subject to subsequent adjustment if final amounts billed differ from the current estimates. During fiscal years 2004 and 2005, fees for services provided by Deloitte & Touche LLP were as follows:
The aggregate fees incurred by the Company for Deloitte & Touche LLP’s audit of the Company’s fiscal year 2005 annual financial statements, the issuance of consents, the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q and audit of the annual management assessment of the effectiveness of internal controls over financial reporting (as required by Section 404 of the Sarbanes-Oxley Act of 2002) totaled $1,130,000 and $1,461,000 in fiscal years 2004 and 2005, respectively.
The aggregate fees billed to the Company by Deloitte & Touche LLP for audit-related services totaled $18,000 and $21,000 in fiscal years 2004 and 2005, respectively.
The aggregate fees billed to the Company by Deloitte & Touche LLP for tax compliance, tax advice and tax planning services totaled $150,000 and $213,000 in fiscal years 2004 and 2005, respectively.
Other than the services described above, there were no other fees billed by Deloitte & Touche LLP for services rendered to the Company in fiscal years 2004 and 2005.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Consistent with the policies of the Securities and Exchange Commission regarding auditor independence, the Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent auditors. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditors.
Prior to engagement of the independent auditors for the following year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
Audit services are services rendered by the independent auditors for the audit of financial statements and review of financial statements included in the Company’s Quarterly Report on Form 10-Q or services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements. In addition, the independent auditors engage in a review of the effectiveness of the Company’s internal controls over financial reporting.
Audit-related services are for assurance and related services performed by the independent auditors that are reasonably related to the performance of the audit or review of the financial statements, including the audit of the annual financial statements for the Company’s Retirement Savings Plan.
Tax services include all services performed by the independent auditors for tax compliance, tax planning and tax advice, including professional services rendered for preparation and review of the federal and state corporate income tax returns, preparation of the Puerto Rico corporate income tax return and miscellaneous tax advice and tax planning related to federal and state income tax issues.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditors and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditors.
Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors requires the affirmative vote of the holders of a majority of the outstanding shares present or represented by proxy and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP, AN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE 20052006 FISCAL YEAR.
The following Report of the Audit Committee does not constitute soliciting materials and shall not be deemed filed or incorporated by reference into any other filing by the Company with the SEC, except to the extent specifically incorporated by reference.
TheFor fiscal year 2005, the Audit Committee is composedconsisted of three directors, each of whom the Board of Directors hashad affirmatively determined iswas “independent” in accordance with the Nasdaq National Market listing standards and the applicable rules and regulations promulgated under the Exchange Act. Kenneth M. Reiss, Chairman of the Audit Committee, has been determined to be the Audit Committee’s “financial expert” and financially sophisticated under the Securities and Exchange Commission and the Nasdaq listing standards, respectively. The membersAudit Committee operates under a written charter, which was amended on November 15, 2005, a copy of which is set forth as Exhibit A to this Proxy Statement and is available on the Company’s website at http://www.wetsealinc.com.
Management of the Audit Committee who have delivered this report were appointed byCompany has primary responsibility for preparing financial statements of the Company, including the Company’s internal controls, as well as the Company’s financial reporting process. Deloitte & Touche LLP, an independent registered public accounting firm, acting as the Company’s independent auditors, is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board and to issue a report thereon and as to management’s assessment of Directors on January 27, 2005.
the effectiveness of internal controls over financial reporting. The Audit Committee serves as the representative of the Board of Directors for general oversight of the Company’s financial accounting and reporting, systems of internal control and audit process, and monitoring compliance with laws and regulations and standards of business conduct. Management of the Company has primary responsibility for preparing financial statements of the Company as well as the Company’s financial reporting process.
Deloitte & Touche LLP, acting as independent registered public accounting firm, is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles.
In this context, the Audit Committee hereby reports as follows:
Based on the review and discussion referred to in the three bullet points above, the Audit Committee, as constituted during the fiscal year 2005, recommended to the Board of Directors and the Board of Directors has approved that the audited
financial statements of the Company for fiscal year |
The Audit Committee acknowledges that due to significant changes in its composition during the 2004 fiscal year it was not practicable to conduct a self-assessment of the Audit Committee’s purpose, duties and responsibilities or review the Company’s Code of Ethical Conduct as required by the Audit Committee Charter. In addition, the Audit Committee acknowledges that for the last two months of the 2004 fiscal year the Company was without a director of the internal audit function. The Audit Committee is actively seeking to identify a qualified individual to fill this role or an outside consultant who can fulfill this function on behalf of the Company.
The Charter of the Audit Committee, which was amended on May 28, 2003, is set forth on Exhibit A attached to the Company’s proxy statement for its 2004 annual stockholder meeting.
Audit Committee:
Kenneth M. Reiss (Chairman)
Sidney M. Horn
Henry D. Winterstern
The foregoing Report of the Audit Committee does not constitute soliciting materials and shall not be deemed to befiled or incorporated by reference in any previous or future documents filed by the Company with the Securities and Exchange Commission under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates the report by reference in any such document.
Fees Paid to the Independent Auditors
The following table presents fees for professional audit services rendered by Deloitte & Touche LLP, an independent registered public accounting firm, for the audit of the Company’s annual financial statements for fiscal years 2004 and 2003, and fees billed for other services rendered by Deloitte & Touche LLP during those periods. All of the services for which fees are listed below were pre-approved by the Audit Committee.
Fiscal Year | ||||||
2004 | 2003 | |||||
Audit Fees (1) | $ | 1,130,000 | $ | 225,800 | ||
Audit-Related Fees (2) | 11,000 | 9,900 | ||||
Tax Fees (3) | 189,200 | 81,000 | ||||
Total Fees | $ | 1,330,200 | $ | 316,700 |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Consistent with the policies of the Securities and Exchange Commission regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of the independent auditors. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditors.
Prior to engagement of the independent auditors for the following year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
Audit services are services rendered by the independent auditors for the audit of financial statements and review of financial statements included in the Company’s Form 10-Q or services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements. In addition, the independent auditors engage in a review of the effectiveness of the Company’s internal controls over financial reporting.
Audit-related services are for assurance and related services performed by the independent auditors that are reasonably related to the performance of the audit or review of the financial statements, including the audit of the annual financial statements for the Company’s Retirement Savings Plan.
Tax services include all services performed by the independent auditors for tax compliance, tax planning, and tax advice, including professional services rendered for preparation and review of the federal and state corporate income tax returns, preparation of the Puerto Rico corporate income tax return and miscellaneous tax advice and tax planning related to federal and state income tax issues.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires the independent auditors and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging the independent auditors.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth information regarding the beneficial ownership of the Company’s Class A Common Stock for (i) each person known to the Company to have beneficial ownership of more than 5% of the Company’s Class A Common Stock; (ii) each of the Company’s directors; (iii) each person who served as Chief Executive Officer during fiscal year 2004,2005, including the Company’s former interim Chief Executive Officer, and former Chief Executive Officer, the threetwo other most highly compensated executive officers serving as executive officers at the end of the last fiscal year and one former officer who would have been among the four most highly compensated executive officers but for the fact that such individual was not serving as an executive officer as of the end of the last fiscal year (collectively, the “Named“Named Executive Officers”Officers”); and (iv) all directors of the Company and the Named Executive Officers as a group. Except for information based upon Schedule 13D or Schedule 13G, as indicated in the footnotes, beneficial ownership is stated as of June 3, 2005.
April 19, 2006.
As of June 3, 2005,April 19, 2006, there were 44,630,14174,571,412 shares of Class A Common Stock issued and outstanding and no shares of Class B Common Stock were issued and outstanding. While the Company has 24,6009,441 shares of Series C Convertible Preferred Convertible Stock issued and outstanding, holders of the Series C Convertible Preferred Stock are not entitled to vote on the matters to be presented at the Annual Meeting.
Name and Address of Stockholder | Beneficial Ownership of Shares of Class A Common Stock | Percent of Beneficial Ownership of Shares of Class A Common Stock | Beneficial Ownership of Shares of Class A Common Stock | Percent of Beneficial Ownership of | ||||||
Prentice Capital Management, LP (1) 623 Fifth Avenue, 32nd Floor New York, NY 10022 | 4,567,625 | 9.99 | %(2) | |||||||
Prentice Capital Management, LP (1) 623 Fifth Avenue, 32nd Floor New York, NY 10022 | 7,934,263 | 9.99 | %(2) | |||||||
S.A.C. Capital Associates, LLC (3) c/o S.A.C. Capital Advisors, LLC 72 Cummings Point Road Stamford, CT 06902 | 4,567,625 | 9.99 | %(2) | 6,285,389 | 8.12 | % | ||||
Smithfield Fiduciary LLC (4) The Cayman Corporate Center, 4th Floor 27 Hospital Road George Town, Grand Cayman Cayman Islands, British West Indies | 4,911,793 | 9.99 | %(2) | |||||||
Michael Gold (4) YM Inc. 50 Dufflaw Road Toronto, Ontario M6A2W1 Canada | 5,600,000 | 7.51 | % | |||||||
GMM Capital LLC (5) 950 Third Avenue, Suite 2805 New York, NY 10022 | 4,900,169 | 9.99 | %(2) | 7,880,358 | 9.76 | % | ||||
Riverview Group, LLC (6) c/o Millenium Management, L.L.C. 666 Fifth Avenue New York, NY 10103 | 4,809,159 | 9.99 | %(2) | 5,402,811 | 6.76 | % | ||||
Trafelet & Company, LLC (7) 900 Third Avenue, 5th Floor New York, NY 10022 | 2,781,500 | 6.2 | % | |||||||
PAR Investment Partners, L.P. (8) c/o PAR Capital Management, Inc. One International Place, Suite 2401 Boston, MA 02110 | 2,575,913 | 5.8 | % | |||||||
FMR Corp. (7) 82 Devonshire Street Boston, MA 02109 | 7,002,400 | 9.39 | % | |||||||
Joseph Deckop | 42,750 | * | ||||||||
Jonathan Duskin | — | * | ||||||||
Douglas C. Felderman | 63,751 | * |
Name and Address of Stockholder Peter D. Whitford (9) Joseph Deckop (10) Douglas C. Felderman (11) Jennifer Pritchard (12) Gary White (13) Allan Haims Kenneth M. Reiss (14) Sidney M. Horn (14) Harold D. Kahn (14) Alan Siegel (15) Joel N. Waller (16) Henry D. Winterstern (17) All directors and officers as a group (10) individuals) (18) Name and Address of Stockholder Percent of Beneficial Ownership of Sidney M. Horn (8) Harold D. Kahn (8) Jennifer Pritchard (9) Kenneth M. Reiss (8) Alan Siegel (8)(10) Joel N. Waller (11) Gary White (12) Henry D. Winterstern (13) Michael Zimmerman (1) All directors and officers as a group Beneficial Ownership
of Shares of Class A
Common Stock Percent of Beneficial
Ownership of
Shares of Class A
Common Stock 500,000 1.1 % 57,750 * 33,335 * 62,200 * 225,000 * 42,750 * 300,000 * 300,000 * 300,000 * 365,751 * 2,400,000 5.4 % 1,000,000 2.2 % 5,586,786 12.3 % Beneficial Ownership
of Shares of Class A
Common Stock
Shares of Class A
Common Stock 300,000 * 270,000 * 181,200 * 300,000 * 347,417 * 2,066,667 * 131,400 * 1,005,000 * 7,934,263 9.99 %(2)
(12 individuals) (14) 12,646,448 16.76 %
* | Less than 1% |
(1) | As reported in Amendment No. 1 to a Schedule 13D dated |
(2) | Each Reporting Person, as holders of secured convertible notes, |
(3) | As reported in |
Associates’ investments in the Company. Prentice Capital Management has, except in limited circumstances, |
Advisors |
(4) | As reported in a |
(5) |
(6) | As reported in Amendment No. 1 to a Schedule 13G dated |
(7) | As reported in Amendment No. 1 to a Schedule 13G dated February 14, 2006, Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR Corp. (“FMR”) and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 (the “1940 Act”), is the beneficial owner of 7,002,400 shares of the Class A Common Stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the 1940 Act. The ownership of one |
investment company, Fidelity Contrafund, amounted to |
(8) |
Includes |
(10) | Includes 77,417 shares of Class A Common Stock issuable upon the exercise of options within 60 days of April 19, 2006. Does not include 30,000 shares of Class A Common Stock which are held in the John R. Siegel 2006 Trust and of which Mr. Siegel disclaims beneficial ownership. |
(11) | Includes (i) 166,667 shares of Class A Common Stock issuable upon the exercise of options within 60 days of April 19, 2006 and (ii) |
(12) | Includes (i) 30,000 shares of Class A Common Stock issuable upon the exercise of options within 60 days of April 19, 2006 and (ii) 100,000 performance shares of Class A Common Stock which are subject to vesting restrictions but have voting rights. |
(13) | Includes (i) 5,000 shares of Class A Common Stock issuable upon the exercise of options within 60 days of April 19, 2006 and (ii) 500,000 restricted shares of Class A Common Stock which are subject to vesting restrictions but have voting rights. |
Includes (i) |
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation (cash and non cash), for fiscal years 2005, 2004 2003 and 20022003 of the Named Executive Officers.
Annual Compensation | Long-Term Compensation Awards | |||||||||||||||||
Name and Principal Position (1) | Fiscal Year | Salary | Bonus | Restricted Stock Awards | Securities Underlying Stock Options (#) | All other Compensations ($) | ||||||||||||
(2) | (3) | |||||||||||||||||
Joseph Deckop (8) Former Interim Chief Executive Officer and Former Executive Vice President | 2004 2003 2002 | $ | 350,865 148,173 0 | $ | 100,000 0 0 | (4) | $ | 357,910 0 0 | 15,000 50,000 0 | $ | 6,250 2,875 0 | (5) (5) | ||||||
Peter D. Whitford (9) Former Chief Executive Officer | 2004 2003 2002 | $ | 684,997 420,192 0 | | 0 0 0 | | | 0 0 0 | 600,000 300,000 0 | $ | 2,098,907 202,328 0 | (6) (7) | ||||||
Jennifer Pritchard Divisional President of Arden B. | 2004 2003 2002 | $ | 398,103 315,000 87,231 | $ | 245,969 0 0 | (4) | $ | 349,160 0 0 | 15,000 66,300 50,000 | $ | 6,000 6,000 1,846 | (5) (5) (5) | ||||||
Douglas C. Felderman Executive Vice President and Chief Financial Officer | 2004 2003 2002 | $ | 253,484 0 0 | $ | 100,000 0 0 | (4) | $ | 410,050 0 0 | 60,000 0 0 | $ | 4,925 0 0 | (5) | ||||||
Gary White Executive Vice President | 2004 2003 2002 | $ | 137,769 0 0 | $ | 20,000 0 0 | (4) | $ | 26,400 0 0 | 30,000 0 0 | $ | 3,400 0 0 | (5) | ||||||
Allan Haims (10) Former Divisional President of Wet Seal | 2004 2003 2002 | $ | 437,204 167,115 0 | | 0 0 0 | | $ | 357,910 0 0 | 15,000 100,000 0 | $ | 5,750 2,750 0 | (5) (5) |
Annual Compensation | Long-Term Compensation Awards | ||||||||||||||||||
Name and Principal Position | Fiscal Year | Salary | Bonus | Restricted Stock Awards | Securities Underlying Stock Options | All other ($) | |||||||||||||
Joel N. Waller President and Chief Executive Officer | 2005 2004 2003 | $ | 635,000 — — | $ | 796,250 — — | | $ | 5,688,000 — — | (2) | 500,000 — — | $ | 15,699 — — | (3) | ||||||
Joseph Deckop Former Interim Chief Executive Officer and Former Executive Vice President | 2005 2004 2003 | $ $ | 69,207 350,865 148,173 | $ | — 100,000 — | (5) | $ | — 357,910 — | (6) | — 15,000 50,000 | $ | 360,112 6,250 2,875 | (4) (7) (7) | ||||||
Douglas C. Felderman Former Executive Vice President and Chief Financial Officer | 2005 2004 2003 | $ | 238,871 253,484 — | $ | 70,000 100,000 — | (5) | $ | — 410,050 — | (6) | — 60,000 — | $ | 364,095 4,925 0 | (8) (7) | ||||||
Jennifer Pritchard Former Divisional President of Arden B. | 2005 2004 2003 | $ | 421,308 398,103 315,000 | $ | 315,878 245,969 — | (5) | $ | — 349,160 — | (6) | — 15,000 66,300 | $ | 30,610 6,000 6,000 | (9) (7) (7) | ||||||
Gary White (10) Executive Vice President | 2005 2004 2003 | $ | 357,126 137,769 — | $ | 242,369 20,000 — | (5) | $ | 678,000 26,400 — | (2) | 60,000 30,000 — | $ | 3,500 3,400 — | (7) (7) |
(1) | While the Named Executive Officers |
(2) | These awards are more fully described under the heading “Employment Agreements with Current Executive Officers”. |
(3) | Amount represents payments of $14,114 in housing allowances and $1,585 in moving expenses. |
(4) | Amount represents the following payments: (i) severance pay of $354,462 in connection with Mr. Deckop’s resignation as Executive Vice President of the Company on March 18, 2005, (ii) payment of $1,000 in connection with the provision of an automobile and (iii) housing allowance payment of $4,650. |
(5) | Bonus amounts earned in fiscal year 2005 were paid to the executives prior to the fiscal year end. |
(6) | These awards have been issued pursuant to retention agreements with the applicable Named Executive |
Amount represents payments in connection with the provision of an automobile. |
Amount represents |
|
|
(9) |
(10) | Mr. |
The following table sets forth information regarding options granted in fiscal year 20042005 to each of the Named Executive Officers. All such options were granted pursuant to the Company’s 1996 Long-Term Incentive Plan, with the exception of Gary White’s options which were granted pursuant toas amended, the Company’s 2000 Stock Incentive Plan.
Plan or the Company’s 2005 Stock Incentive Plan, as amended.
OPTION GRANTS IN THE LAST FISCAL YEAROption Grants In The Last Fiscal Year
Individual Grants | Individual Grants | ||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Options Granted (shares) (1) | Percentage of Total Options Granted to Employees in Fiscal Year 2004 | Exercise or Base Price ($ per share) | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (2) | Number of Securities Underlying Options Granted (shares) (1) | Percentage of Total Options Granted to Employees in Fiscal Year 2005 | Exercise or ($ per share) | Expiration Date | Potential Realizable Value at for Option Term (2) | |||||||||||||||||||||||||
5% ($) | 10% ($) | 5%($) | 10%($) | ||||||||||||||||||||||||||||||||
Joel N. Waller | 96,153 | 13.47 | % | $ | 3.12 | 3/10/15 | $ | 188,667 | $ | 478,119 | |||||||||||||||||||||||||
403,847 | 56.56 | % | 3.12 | 3/10/15 | 792,409 | 2,008,120 | |||||||||||||||||||||||||||||
Joseph Deckop | 15,000 | 1.01 | % | $ | 5.93 | 6/30/14 | (3) | $ | 55,940 | $ | 141,763 | — | — | — | — | — | — | ||||||||||||||||||
Peter D. Whitford | 100,000 200,000 300,000 | 6.74 13.48 20.23 | % % % | $ $ $ | 5.78 2.00 1.75 | 6/17/14 6/01/06 6/01/06 | (3) (4) (4) | | — — — | (5) (6) (6) | | — — — | (5) (6) (6) | ||||||||||||||||||||||
Douglas C. Felderman | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Jennifer Pritchard | 15,000 | 1.01 | % | $ | 5.93 | 6/30/14 | $ | 55,940 | $ | 141,763 | — | — | — | — | — | — | |||||||||||||||||||
Douglas C. Felderman | 50,000 10,000 | 3.37 0.67 | % % | $ $ | 8.02 5.93 | 4/22/14 6/03/14 | | $ $ | 120,246 37,293 | | $ $ | 428,998 94,509 | | ||||||||||||||||||||||
Gary White | 30,000 | 2.02 | % | $ | 5.67 | 7/16/14 | $ | 71,791 | $ | 215,071 | 60,000 | 8.40 | % | $ | 3.39 | 3/28/15 | $ | 127,917 | $ | 324,167 | |||||||||||||||
Allan Haims | 15,000 | 1.01 | % | $ | 5.93 | 6/30/14 | (3) | N/A | (5) | N/A | (5) |
(1) | All options granted vest |
(2) | Potential realizable value is based on the assumption that the stock price of the Class A Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. These numbers are calculated based on the requirements promulgated by the Securities and Exchange Commission and do not reflect the Company’s estimate of future stock price performance. |
|
|
Option Exercise and Fiscal Year-End Values
The following table sets forth information regarding the exercise of options by each of the Named Executive Officers during fiscal year 2004.2005. The table also shows the number and value of unexercised options held by each of the Named Executive Officers as of January 29, 2005.28, 2006. The value of unexercised options is based on a fair market value as determined by the closing sale price of $2.23$5.50 per share of Class A Common Stock as of January 28, 2005.
27, 2006.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEARAggregated Option/Sar Exercises In The Last Fiscal Year
AND OPTION/SAR VALUES AT JANUARY 29, 2005And Option/Sar Values At January 28, 2006
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options at January 29, 2005 (#) | Value of Unexercised “In-the-Money” Options at January 29, 2005 ($) (1) | Shares Acquired on Exercise (#) | Value ($) | Number of Securities Underlying Unexercised Options at January 28, 2006 | Value of Unexercised “In-the-Money” Options at January 28, 2006 ($) (1) | |||||||||||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||||
Joel N. Waller | 0 | 0 | 0 | 500,000 | 0 | $ | 1,190,000 | ||||||||||||||||||||
Joseph Deckop | 0 | 0 | 15,000 | (2) | 50,000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||
Peter D. Whitford | 0 | 0 | 633,334 | (3) | 0 | $ | 190,000 | 0 | |||||||||||||||||||
Douglas C. Felderman | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Jennifer Pritchard | 0 | 0 | 47,100 | 84,200 | 0 | 0 | 0 | 0 | 89,200 | 42,100 | 0 | 0 | |||||||||||||||
Douglas C. Felderman | 0 | 0 | 3,334 | 56,666 | 0 | 0 | |||||||||||||||||||||
Gary White | 0 | 0 | 0 | 30,000 | 0 | 0 | 0 | 0 | 10,000 | 80,000 | 0 | $ | 126,600 | ||||||||||||||
Allan Haims | 0 | 0 | 33,334 | 0 | 0 | 0 |
(1) | Represents the market value of shares underlying “in-the-money” options on January |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of January 29, 200528, 2006 about the Company’s Class A Common Stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the Board of Directors under all of the Company’s existing equity compensation plans, including the Company’s 1996 Long-Term Incentive Plan, as amended, the 2000 Stock Incentive Plan and the 2005 Stock Incentive Plan.Plan, as amended.
(a) | (b) | (c) | |||||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||
Equity compensation plans approved by security holders | 3,593,042 | $ | 8.90 | 9,181,915 | |||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | ||||
Total | 3,593,042 | $ | 8.90 | 9,181,915 |
(a) | (b) | (c) | |||||
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||
Equity compensation plans approved by security holders | 3,670,563 | $ | 7.82 | 3,229,506 | |||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | ||||
Total | 3,670,563 | $ | 7.82 | 3,229,506 |
Changes in our Board Composition and Management
The composition of our Board of Directors and executive management has changed since the Company’s last annual meeting. On August 3, 2004, Peter D. Whitford31, 2005, Douglas C. Felderman resigned as Executive Vice President and Chief Financial Officer. On December 12, 2005, John J. Luttrell was appointed as a DirectorExecutive Vice President and Chairman of the Board of Directors. Chief Financial Officer.
On this same date, Irving Teitelbaum was replaced by Mr. Whitford as Chairman of the Board of Directors but remained as a Director of the Company. On August 18, 2004, Howard Gross was appointed as lead directorMarch 6, 2006, Michael Zimmerman and Mr. Winterstern and Anne K. ZehrenJonathan Duskin were appointed to the Board of Directors. On the same day, George H. Benter and Barry J. Entous retired from the Board of Directors.
On November 4, 2004, Mr. WhitfordMarch 1, 2006, Jennifer Pritchard resigned from his position as Chief Executive Officer and Chairman of the Board of Directors. In connection with Mr. Whitford’s resignation, the Board of Directors appointed Joseph Deckop as interim Chief Executive Officer effective November 8, 2004. Also on November 8, 2004, the Board of Directors accepted the resignation of Ms. Zehren and appointed Mr. Winterstern as Chairman of the Board of Directors. On November 23, 2004, the Company announced the resignation of Allan Haims as President of the Company’s Arden B. division. On March 12, 2006, Gregory S. Gemette was appointed the President of Merchandise of the Company’s Arden B. division. On April 2, 2006, Gary White was appointed as the Company’s Chief Operating Officer. On May 2, 2006, Dyan M. Jozwick became the Chief Merchandise Officer of the Company’s Wet Seal division.
On December 28, 2004, Mr. Irving Teitelbaum and Stephen Gross retired from the Board of Directors of the Company. Effective as of December 30, 2004, the Company’s Board of Directors appointed Joel N. Waller as a Director.
Effective as of January 27, 2005, Walter Loeb and Wilfred Posluns retired from the Board of Directors and Howard Gross resigned as a director of the Company. On the same day, Sidney M. Horn, Harold D. Kahn and Kenneth M. Reiss were appointed to serve on the Board of Directors. Effective as of February 1, 2005, Mr. Waller was appointed President and Chief Executive Officer. On March 15, 2005, Joseph Deckop resigned from his position as Executive Vice President.
Employment Agreements with Current Executives
Joel N. Waller
On December 16, 2004, the Company and Joel N. Waller entered into an Employment Agreement setting forth the terms of Mr. Waller’s employment with the Company as its President and Chief Executive Officer (the “Agreement”“Waller Agreement”), effective on February 1, 2005 (the “Effective Date”“Effective Date”).
TheUnder the Waller Agreement, sets forth the terms of Mr. Waller’s employment, including:Waller shall be entitled to: (i) a base salary of $650,000, (ii) an annual performance bonus to be paid in accordance with the Company’s incentive plan, with a target
award up to 100% of Mr. Waller’s base salary and a maximum incentive opportunity of up to 200% of his base salary, and (iii) 2,400,000 performance shares of the Company’s Class A Common Stock which were granted on February 1, 2005 under the terms of the Company’s 2005 stock incentive planStock Incentive Plan (the “Plan”“Plan”) and, as amended, which are not inconsistent with the relatedterms of the performance shares award agreement entered into on February 1, 2005 by the Company and Mr. Waller (the “Award Agreement”“Award Agreement”).
The Award Agreement provides that the shares will be granted in two tranches of 1,200,000 shares each (“Tranche 1”1” and “Tranche 2”“Tranche 2” respectively), subject to certain restrictions. In particular, prior to vesting of the shares, Mr. Waller may not transfer the shares, except to his immediate family members for no consideration or as provided in the Plan or the Award Agreement.
Tranche 1 of Mr. Waller’s shares will vest as follows: (i) 600,000 of the Tranchevested on March 1, Shares will vest if, at any time following the first anniversary of the Effective Date and before the third anniversary of the Effective Date (the “Tranche 1 Vesting Period”), the weighted average closing price of the Company’s stock for any trailing 20 trading days (the “20-Day Average”) during the Tranche 1 Vesting Period equals or exceeds $3.50 per share; an additional 200,000 of the Tranche 1 Shares will vest (until the entire Tranche 1 is 100% vested) each time the 20-Day Average price of the Company’s stock during the Tranche 1 Vesting Period equals or exceeds $4.00, $4.50 and $5.00 per share; and, for the avoidance of doubt, if the 20-Day Average equals or exceeds $5.00 per share at any time during the Tranche 1 Vesting Period, 100% of Tranche 1 shall vest; and (ii) 200,0002006. Two hundred thousand of the Tranche 2 Shares will vest if, at any time following the second anniversary of the Effective Date and before the third anniversary of the Effective Date (the “Tranche“Tranche 2 Vesting Period”Period”), the weighted average closing price of the Company’s Class A Common Stock for any trailing 20 trading days (the “20-Day Average”) during the Tranche 2 Vesting Period equals or exceeds $5.50 per share; an additional 200,000 of the Tranche 2 Shares will vest (until the entire Tranche 2 is 100% vested) each time the 20-Day Average price of the Company’s stock during the Tranche 2 Vesting Period equals or exceeds $6.00, $6.50, $7.00, $7.50 and $8.00 per share; and, for the avoidance of doubt, if the 20-Day Average equals or exceeds $8.00 per share at any time during the Tranche 2 Vesting Period, 100% of Tranche 2 shall vest. If any of the Shares are still outstanding as of the third anniversary of the Effective Date and have not otherwise vested after giving effect to the vesting provisions of clauses (i) and (ii)described above, the unvested Shares shall automatically be forfeited without the payment of any consideration to Mr. Waller.
Peter D. WhitfordGregory S. Gemette
On March 4, 2006, the Company and Mr. Gregory S. Gemette entered into an Employment Agreement (the “Gemette Agreement”) setting forth the terms of Mr. Gemette’s employment with the Company as President of Merchandise for the Company’s Arden B. division, effective as of March 13, 2006.
Peter D. Whitford served asUnder the Chief Executive OfficerGemette Agreement, Mr. Gemette shall be entitled to: (i) a base salary of $400,000 (subject to annual review by the Board of Directors), (ii) an annual performance bonus to be paid in accordance with the Company’s incentive plan, with a target award up to 50% of Mr. Gemette’s base salary, (iii) a relocation allowance and (iv) the right to receive options to acquire up to 50,000 shares of Class A Common Stock of the Company from June 30, 2003 through November 4, 2004. During his employment,Company. The options will vest in equal tranches over a three year period beginning on the first anniversary date of employment. In addition, Mr. Whitford wasGemette will be entitled to receive an120,000 restricted shares of the Company’s Class A Common Stock. The restricted shares shall be granted in three equal annual base salaryinstallments of $750,000, adjustable annually,40,000. The initial installment will be granted on the first anniversary of Mr. Gemette’s commencement of employment. The options and was eligiblerestricted stock granted to receive a performance bonus. AtMr. Gemette shall be subject to the timeterms and conditions of the Company’s 2005 Stock Incentive Plan, as amended, and the related award agreement.
In the event Mr. Gemette is terminated without “cause” (as defined in the Gemette Agreement) or his employment with the Company is terminated hisby Mr. Gemette for “good reason” (as defined in the Gemette Agreement), he shall be entitled to receive severance pay equivalent to six months base salary.
Dyan M. Jozwick
On May 2, 2006, the Company and Ms. Dyan M. Jozwick entered into an Employment Agreement (the “Jozwick Agreement”) setting forth the terms of Ms. Jozwick’s employment with the Company as Chief Merchandise Officer of the Wet Seal division.
Under the Jozwick Agreement, Ms. Jozwick shall be entitled to: (i) a base salary of $400,000 (subject to annual review by the Board of Directors), (ii) an annual performance bonus equal to a maximum of 100% of Ms. Jozwick’s base salary, was $775,000.(iii) a signing bonus of $50,000, that shall be earned over the course of her first year of employment, (iv) a relocation allowance and (v) the right to receive options to acquire up to 90,000 shares of Class A Common Stock of the Company. The options will vest in equal tranches over a three year period beginning on May 2, 2007. In addition, Ms. Jozwick will be entitled to receive 30,000 restricted shares of the Company’s Class A Common Stock. The restricted shares shall vest in three equal annual installments beginning on May 2, 2007. The options and restricted stock granted to Ms. Jozwick shall be subject to the terms and conditions of the Company’s 2005 Stock Incentive Plan, as amended, and the related award agreement.
In the event Ms. Jozwick is terminated without “cause” or there is a “change of control” (each as defined in the Jozwick Agreement), she shall be entitled to receive severance pay equivalent to six months base salary.
John J. Luttrell
On November 4, 2004,December 5, 2005, the Company and Mr. WhitfordJohn J. Luttrell entered into an Employment Agreement and General Release to terminate(the “Luttrell Agreement”) setting forth the terms of Mr. Whitford’sLuttrell’s employment with the Company. PursuantCompany as its Executive Vice President and Chief Financial Officer, effective as of December 12, 2005.
Under the Luttrell Agreement, Mr. Luttrell shall be entitled to: (i) a starting base salary of $375,000, (ii) an annual performance bonus to thisbe paid in accordance with the Company’s incentive plan, with a target award up to 50% of Mr. Luttrell’s base salary, (iii) a signing bonus of $50,000, payable in installments and subject to forfeiture and (iv) a temporary housing allowance. Mr. Luttrell will also be entitled to receive options to acquire up to 100,000 shares of Class A Common Stock of the Company which will be priced at the greater of (x) the closing price on the date of the commencement of employment and (y) the average 30 day market price of the Company’s Class A Common Stock ending on and including the date of the commencement of employment. The options will vest in equal tranches over a three year period beginning on December 12, 2006. In addition, Mr. Luttrell will be entitled to receive 210,000 restricted shares of the Company’s Class A Common Stock. The restricted shares shall be granted in three equal annual installments of 70,000. The initial installment will be granted on December 12, 2007. The options and restricted stock granted to Mr. Luttrell shall be subject to the terms and conditions of the Company’s 2005 Stock Incentive Plan, as amended, and the related award agreement.
In the event Mr. Luttrell is terminated without “cause” (as defined in the Luttrell Agreement) within the first three years of the date of his employment, he shall be entitled to receive severance pay equivalent to one year’s base salary. In the event that Mr. Luttrell’s employment is terminated with “cause” (as defined in the Luttrell Agreement) within three years of his employment, or with or without cause on or after the third anniversary of his employment, Mr. Luttrell will not be entitled to severance pay.
Gary White
On April 2, 2006, Mr. Gary White was appointed as the Company’s Chief Operating Officer. Mr. White had previously served as President, Store Operations, Wet Seal division. On April 10, 2006, the Company and Mr. White entered into a new employment agreement (the “White Agreement”) setting forth the terms of Mr. Whitford resigned from his positionsWhite’s employment with the Company as its Chief ExecutiveOperating Officer, Director and Chairmaneffective as of April 2, 2006.
Under the White Agreement, Mr. White shall be entitled to: (i) a base salary of $450,000 (subject to annual review by the Board of Directors effective as of November 4, 2004.
In addition, the Agreement and General Release provided that Mr. Whitford would receive certain payments and grants of optionsan increase from the Company, including: (i) bi-weekly payments of $29,807 which were paid from November 5, 2004 until January 14, 2005 (the “Payment Date”)$375,000), (ii) 300,000annual bonus compensation equal to a maximum of 100% of Mr. White’s base salary and (iii) stock options at anto purchase 150,000 shares of the Company’s Class A Common Stock, which shall vest in three equal installments on the first, second and third anniversaries of the grant. The exercise price of $1.75 per sharesuch options shall be set in accordance with the terms of the plan under which such options are granted and 200,000 options at an exercise priceshall be subject to a written option agreement in a form acceptable to the Company.
In the event Mr. White is terminated without “cause” or upon a “change of $2.00 per share, exercisable until June 1, 2006, issued on December 8, 2004, (iii)control” resulting in either a paymentdiminution of $1,585,000 (lessduties or termination (each as defined in the total amount of bi-weekly payments) which was paid on the Payment Date, representing two years of compensation, (iv) a payment of $509,400 which was paid on the Payment Date, representing the cost of three annual contributionsWhite Agreement), Mr. White shall be entitled to Mr. Whitford’s supplemental executive retirement plan, (v) a payment ofreceive severance pay in an amount equal to one year’s base salary.
Mr. White was also granted equity compensation under the costterms of his March 28, 2005 employment agreement with the Company, which included: (i) 60,000 Company stock options which vest equally in three installments beginning on March 28, 2006 and (ii) 200,000 shares of performance shares of the Company’s Class A Common Stock, granted in two tranches, of 100,000 shares each, pursuant to the Company’s 2005 Stock Incentive Plan, as amended, which vest upon the achievement of certain trading prices of the Company’s Class A Common Stock. Tranche 1 of Mr. Whitford’s continued healthcare coverage for eighteen months following November 4, 2004, which was paidWhite’s shares vested on or before the Payment Date, and (vi) $50,000 representing the cost of providing outplacement services which was paid on the Payment Date.March 28, 2006.
Furthermore, each of the CompanyEmployment Agreements and Mr. Whitford released the other party from any claims it had against such other party up to November 4, 2004.
Severance Agreements with Former Executives
Joseph Deckop
On October 27, 2004, the Company entered into a retention agreement with Joseph Deckop, in his capacity as Executive Vice President of the Company. Mr. Deckop also served as the Company’s interim Chief Executive Officer following the departure of Mr. Whitford on November 14, 2004 until February 1, 2005, the date upon which Mr. Waller assumed his duties as President and Chief Executive Officer.
Under the retention agreement, Mr. Deckop received a one-time retention cash bonus of $100,000 on December 1, 2004, which was required to be returned to On March 18, 2005, the Company ifentered into a Separation Agreement and General Release with Mr. Deckop were to voluntarily terminate his employment with the Company within 12 months. In addition, Mr. Deckop received a grant of 155,000 shares of our restricted stock as well as certain severance protections upon an involuntary termination of employment by the Company. The Company did not modify Mr. Deckop’s retention agreement in connection with his appointment as interim Chief Executive Officerresignation from the position of the Company.
On March 15, 2005, Mr. Deckop resigned from his position as Executive Vice President. In connection with his separation fromPresident, pursuant to the Company,terms of which Mr. Deckop was entitled to: (i) a severance payment of $354,462, (ii) the accelerated vesting of 38,750 shares of restricted stock previously granted to him by the Company and (iii) the right to exercise previously granted, but unexercised, options to purchase 15,000 shares of the Company’s Class A Common Stock until June 13, 2005. Mr. Deckop did not required to return his $100,000 retention bonus.
exercise any of these options before they expired.
Douglas C. Felderman
On October 28, 2004, the Company entered into a retention agreement with Douglas C. Felderman, ourthe former Executive Vice President and Chief Financial Officer. Under the retentionOfficer, which agreement set forth Mr. Felderman received a one-time retention cash bonus of $100,000, which is required to be returned to the Company if Mr. Felderman were to voluntarily terminate his employment with the Company within 12 months.
In addition, Mr. Felderman received a grant of 155,000 shares of our restricted stockFelderman’s base salary and other compensation as well as certain severance protections upon an involuntary termination of employment by the Company.
On August 31, 2005, the Company entered into a Separation Agreement and General Release with Mr. Felderman in connection with his resignation from the position of Executive Vice President and Chief Financial Officer of the Company, pursuant to the terms of which Mr. Felderman was entitled to: (i) a severance payment of $365,500, (ii) the accelerated vesting of 53,750 shares of restricted stock previously granted to him by the Company, (iii) the right to exercise previously granted, but unexercised, options to purchase 23,334 shares of the Company’s Class A Common Stock until November 29, 2005 and (iv) a payment for unused vacation in the amount of $24,978. Mr. Felderman did not exercise any of these options before they expired.
Jennifer Pritchard
On September 27, 2004, the Company entered into a retention agreement with Jennifer Pritchard, the former President of the Company’s Arden B. division.division, which agreement set forth Ms. Pritchard’s base salary was increased by $25,000 to an annual rate of $410,000, her bonus opportunity was increased from 50% of her salary to 75% of her salary and her previous maximum bonus was increased from 100% to 150% of her salary. In addition, Ms. Pritchard was given a retention cash bonus of $200,000, which is required to be returned to the Company if she were to leave voluntarily within 12 months. Ms. Pritchard has the right to exchange the retention cash bonus for an award of 200,000 shares of our Class A Common Stock.
In addition, Ms. Pritchard received a grant of 200,000 shares of our restricted Class A Common Stockother compensation as well as certain severance protections upon an involuntary termination of employment by the Company.
Gary White
On March 28, 2005,1, 2006, the Company and Gary White entered into an “at-will” employment agreement. Undera Separation Agreement and General Release with Mr. Pritchard in connection with her resignation from the employment agreement, Mr. White isposition of President of the Company’s Arden B. division, pursuant to the terms of which Ms. Pritchard was entitled to and has been granted:to: (i) a base salary increase to an annual rateseverance payment of $375,000,$675,000, (ii) 60,000 Company stock options which vest equally in three installments beginning on the first anniversaryaccelerated vesting of the signing of the employment agreement, (iii) 200,00050,000 shares of restricted stock previously granted in two tranches, pursuant to her by the Plan, which vest uponCompany and (iii) the achievement of certain trading pricesright to exercise previously granted, but unexercised, options to purchase 89,200 shares of the Company’s Class A common stock,Common Stock until May 30, 2006. As of the date of this Proxy Statement, Ms. Pritchard has not exercised any of these options.
Consulting Agreement with Michael Gold
The Company entered into an agreement with Michael Gold on July 7, 2005 (the “Gold Agreement”) to compensate him for his part in the sales turnaround of the Company and (iv)to provide incentives for his future assistance in achieving the Company’s return to profitability. Mr. Gold has been acting as a discretionary annual bonusconsultant to the Company and has been instrumental in both the design and execution of up to 50% of his base salary.the Company’s new merchandise strategy. The Gold Agreement term ends on January 31, 2007.
Mr. Gold was paid $2.8 million for the fiscal year ending January 28, 2006 and will be paid $1.2 million for the fiscal year ending February 3, 2007.
In addition, Mr. White is entitled to receive a severance payment equal to one year’s base salary if he is terminated by the Company without cause within one yearGold was awarded 2.0 million shares of restricted stock which vested on January 28, 2006 and two tranches of performance shares of 1,750,000 each (the “Shares”). Tranche 1 of the signingShares vested as follows: 1,050,000 on February 1, 2006; 350,000 on February 15, 2006; and 350,000 on March 29, 2006. Tranche 2 of the employment agreement. The severance paymentShares is conditioned upon Mr. White entering into a separation agreementto vest as follows: 350,000 shares will vest if, at any time after January 1, 2007 and general releasebefore January 1, 2008, the weighted average closing price of the Company’s Class A Common Stock for any claims againsttrailing 20 trading days (the “20-Day Average”) equals or exceeds $6.00 per share; an additional 350,000 shares will vest (until tranche 2 is 100% vested) each time the Company upon his termination.
20-Day Average price of the Company’s Class A Common Stock during the vesting period equals or exceeds $6.50, $7.00, $7.50 and $8.00 per share, respectively. In addition, the Tranche 2 Shares to be otherwise earned in calendar year 2007 can vest earlier if sales per square foot of the Company’s Wet Seal division average $350 per square foot for any trailing 12 month period and an agreed merchandise margin is maintained.
The Company did not modifyfiled a registration statement on Form S-8 covering the Shares issued to Mr. White’s employment agreement in connection with his appointment as Executive Vice President of the Company.
Gold.
All directors, other than Messrs. Waller, Winterstern, Zimmerman and Winterstern,Duskin receive an annual fee of $75,000 that is payable quarterly. Mr. Winterstern receives an annual fee of $250,000 that is payable quarterly. In addition, each director, other than Messrs. Waller, Winterstern, Zimmerman and WintersternDuskin, received 300,000 shares of restricted stock, 100,000 shares of which vested on January 27, 2006, and the remaining shares which shall vest in threetwo equal installments on the first, second and third anniversaries of the date of grant which was January 27, 2005. Mr. Winterstern received 750,000 shares of restricted stock which vest underare subject to the same vesting terms.
The terms of the compensation arrangements with Messrs. Zimmerman and Duskin have not yet been determined.
The awarding of stock options and/or restricted stock by the Company to directors, in their capacity as such, is at the discretion of the Compensation/Option Committee. The directors do not receive any additional compensation in connection with their attendance of board and committee meetings. All directors are reimbursed for expenses incurred in connection with attendance at the meetings of the Board of Directors.
Mr. Waller is not entitled to any additional compensation in his capacity as a director. Please see the summary of Mr. Waller’s employment agreement set forth in this Proxy Statement for additional compensation information.
a description of his compensation.
Special Committee Compensation
On August 18, 2004, the Company formed a special committee of the Board of Directors to analyze various business alternatives in light of its financial condition. The Special Committee was composed of Mr. Winterstern (Chairman), Howard Gross and Alan Siegel. Upon the recommendation of Pearl Meyer & Partners, a leading compensation consulting firm, Henry D. Winterstern received a fee of $35,000 per month for the first two months of service on the Special Committee, while Messrs. Gross and Siegel received $25,000 per month for the same period. Each member of the Special Committee received one-half of his respective monthly fee for the third month of service on the Special Committee. The Special Committee was disbanded on November 9, 2004, which was the date of execution of the Securities Purchase Agreement governing the private placement of the Company’s convertible notes and warrants (the “Private Placement”).
Additional Compensation for Mr. Winterstern
On February 24, 2005, Mr. Winterstern received 250,000 shares of unregistered Class A Common Stock in consideration for his extensive involvement in the structuring, negotiation and successful conclusion of the Private Placement.
The Company has entered into indemnification agreements with each of our current directors and certain of our officers. These agreements requires us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the Company, and to adverse expenses incurred as a result of any proceeding against them as to which they can be indemnified. We expect to enter into indemnification agreements with our future directors and certain of our officers.
Compensation/Option Committee Report
The following Report of the Compensation/Option Committee does not constitute soliciting materials and shall not be deemed filed or incorporated by reference into any other filing byof the Company with the SEC, except to the extent specifically incorporated by reference.Board of Directors on Executive Compensation
The primary duties ofFor fiscal year 2005, the Compensation/Option Committee include: (i) reviewingconsisted of four outside directors, each of whom the Board of Directors had affirmatively determined was “independent” in accordance with Nasdaq National Market listing standards. The Compensation/Option Committee is responsible for discharging the Board of Directors’ responsibility with respect to all forms of compensation levels of the Company’s primary executive officers, and certain other members of senior management, (ii)administering the Company’s equity incentive plans for employees, consulting with and making recommendations to the Company’s Board of Directors regarding the Company’s overall policy of granting options and restricted stock awards under the Company’s long-term incentive plans, (iii) monitoring the performance of senior management (iv) granting restricted stock, performance shares and stock options to executive officers andperforming such other key employees, and (v) related matters. Thefunctions as the Board of Directors has affirmatively determined that each membermay from time to time assign to the Compensation/Option Committee.
The following report summarizes the philosophies and methods the Board of Directors and the Compensation/Option Committee is independentuses in accordance with Nasdaq National Market listing standards. The members of the Compensation/Option Committee who have delivered this report were appointed byestablishing and administering the Company’s Boardexecutive compensation and incentive programs, including the development of Directors on January 27, 2005.
compensation programs designed to provide key executive officers with ownership interests in the Company and motivation to build shareholder value.
The Company’s executive compensation programs are based upon the recognition that The Wet Seal, Inc.the Company competes in a creative industry in which it is critical to stay current with rapidly changing trends and styles. Competition is intense for talented executives who can successfully guide a company in this type of competitive environment. Therefore, the Company’s compensation programs are designed to provide total compensation packages that will both attract talented individuals to the Company as well as provide rewards based upon the Company’s long-term success.
With these principles in mind, the Compensation/Option Committee has set forth the following guidelines:
1. Provide base salaries that are competitive in the retail apparel industry to attract and retain talented individuals;
2. Provide annual bonuses that are tied to the Company’s short-term performance to align the interests of the Company’s executives with those of its stockholders; and
3. Provide long-term incentive benefits that will reward long-term commitment to the Company.
In fiscal 2005, the Company entered into employment agreements with John J. Luttrell, the Executive Vice President and Chief Financial Officer of the Company, and Gary White, who served in the roles of Executive Vice President of the Company and Senior Vice President, Store Operations, Wet Seal division, during fiscal year 2005. Mr. White has since been promoted to the position of Chief Operating Officer of the Company. The employment agreement of Mr. Luttrell is more fully described under the heading “Employment Agreements with Current Executive Officers”, as are the terms of Mr. White’s employment agreements with the Company. The Board of Directors enters into employment agreements with certain of its executive officers to incentivize them to remain with the Company and to further align their interests with those of the Company’s stockholders.
Compensation of Executive Officers
Base salaries for executive officers are established with a view to the responsibilities of the position and the experience of the individual. Salary levels are also fixed with reference to comparable companies in retail and related trades. The salaries of key executive officers and the incentive plans in which they participate are reviewed annually by the Compensation/Option Committee in light of the Committee’s assessment of individual performance, contribution to the Company and level of responsibility.
Executive officers are eligible to receive annual cash bonuses with a percentage based on the profitability of the Company and another percentage based on individual performance.Company. The Compensation/Option Committee believes that tying annual cash bonuses to the Company’s profitability aligns the interests of management with stockholders and encourages intensive efforts to attain and increase profitability.
The Company maintains an employee stock bonus plan in which the top executives and other key employees of the Company are eligible to participate. Awards under this plan are calculated by multiplying the Company’s fiscal year-end pretax profit (if any) as a percentage of sales by the employee’s base salary and dividing such amount by the price of the Company’s Class A Common Stock as of the end of the fiscal year. Grants under the stock bonus plan vest over a period of three years.
Restricted stock, performance shares and stock options are granted to executive officers and other key employees whose contributions are considered important to the long-term success of the Company pursuant to the Company’s long-term incentive plans. Restricted stock, performance shares and stock options have historically been granted by the Compensation/Option Committee on a case-by-case basis based upon management’s recommendations and the Committee’s evaluation of an individual’s past contributions and potential future contributions to the Company. In granting restricted stock, performance shares and stock options, the Compensation/Option Committee takes into consideration the anticipated long-term contributions of an individual to the potential growth and success of the Company, as well as the number of options, restricted stock and/or performance shares previously granted to the individual.
Compensation of the Chief Executive Officer
On June 30, 2003, Peter D. Whitford was appointedMr. Joel N. Waller has served as President and Chief Executive Officer byof the Board of Directors. For fiscal year 2004,Company since February 1, 2005. Mr. Whitford was compensated in accordance with hisWaller’s employment agreement which is described elsewhere in this Proxy Statement.Statement under the heading “Employment Agreements with Current Executive Officers”. Mr. Whitford resigned as Chief Executive Officer effective as of November 4, 2004.
Effective November 8, 2004, the Board of Directors appointed Joseph Deckop served as interim Chief Executive Officer. For fiscal yearOfficer from November 9, 2004 Mr. Deckop was compensated in accordance with his employment agreement, which is described elsewhere in this Proxy Statement. Mr. Deckop’s position as Interim Chief Executive Officer was terminated effective as ofto February 1, 2005, when Mr. Waller was appointedreplaced Mr. Deckop as President and Chief Executive Officer of the Company.
Pursuant to Mr. Waller’s employment agreement for fiscal year 2005, Mr. Waller received a base salary of $650,000. He was awarded an annual performance bonus of $796,250 in fiscal year 2005. None of Mr. Waller’s performance shares vested during the fiscal year 2005. In addition, during fiscal year 2005 the Compensation/Option Committee authorized the grant to Mr. Waller of options to purchase 500,000 shares of the Company’s Class A Common Stock, which options vest in equal installments over a period of three years.
On December 16, 2004,In order to encourage Mr. Waller to perform at the highest level, the Committee believes that Mr. Waller’s compensation should be heavily comprised of incentive compensation tied to the annual and long-term financial performance of the Company and Joel N. Waller entered into an Employment Agreement setting forth the terms oflong-term return realized by stockholders. Therefore, Mr. Waller’s employment as Presidentbase compensation has been and Chief Executive Officer. Mr. Waller’s Employment Agreement is described elsewhere in this Proxy Statement. Mr. Waller assumed his role as Presidentlower than market salaries and Chief Executive Officer effective February 1, 2005.
is comprised mostly of performance shares tied to the stock price performance of the Company’s Class A Common Stock.
Limitations on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”“Code”), enacted as part of the Revenue Reconciliation Act of 1993, limits the deductibility of compensation paid to certain executive officers of the Company beginning with the Company’s taxable year 1994. To qualify for deductibility under Section 162(m), compensation in excess of $1 million per year paid to the Chief Executive Officer and the four other most highly compensated executive officers at the end of such fiscal year generally must be either (1) paid pursuant to a written binding contract in effect on February 17, 1993 or (2) “performance-based” compensation as determined under Section 162(m). In order to be considered “performance-based” for this purpose, compensation must be paid solely on account of the attainment of one or more pre-established performance goals established by a committee of two or more “outside directors,” pursuant to an arrangement that has been disclosed to and approved by stockholders. Also, in order for an arrangement to give rise to fully deductible “performance-based” compensation, the terms of the arrangement must preclude the exercise of any discretion in the administration of the plan that would have the effect of increasing compensation paid thereunder. In the future, the Compensation/Option Committee will continue to evaluate the advisability of qualifying its executive compensation for deductibility under Section 162(m).
Policy with Respect to Qualifying Compensation Deductibility
The Company’s policy with respect to the deductibility limit of Section 162(m) of the Code generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in the best interest of the Company and its stockholders. However, the Company reserves the right to authorize the payment of non-deductible compensation if it deems that it is appropriate.
Compensation/Option Committee:
Sidney M. Horn
Harold D. Kahn
Kenneth M. Reiss
Henry D. Winterstern
The foregoing Report of the Compensation/Option Committee does not constitute soliciting materials and shall not be deemed filed or incorporated by reference into any other filing by the Company with the SEC, except to the extent specifically incorporated by reference.
The following graph compares the cumulative stockholder return on the Company’s Class A Common Stock with the return on the Total Return Index for the NASDAQ Stock Market (US) and the NASDAQ Retail Trade Stocks. The graph assumes $100 invested on January 28, 2000February 2, 2001 in the stock of The Wet Seal, Inc., the NASDAQ Stock Market (US) and the NASDAQ Retail Trade Stocks. It also assumes that all dividends are reinvested.
Performance Graph for the Class A Common Stock of Wet Seal, Inc.
January 28 2000* | February 2, 2001* | February 1, 2002* | January 31, 2003* | January 30, 2004* | January 28, 2005* | February 2, 2001* | February 1, 2002* | January 31, 2003* | January 30, 2004* | January 28, 2005* | January 27, 2006* | |||||||||||||||||||||||||
The Wet Seal, Inc. | $ | 100 | $ | 282 | $ | 362 | $ | 182 | $ | 179 | $ | 46 | $ | 100 | $ | 128 | $ | 65 | $ | 63 | $ | 16 | $ | 40 | ||||||||||||
NASDAQ Stock Market (US) | $ | 100 | $ | 68 | $ | 49 | $ | 34 | $ | 54 | $ | 53 | $ | 100 | $ | 72 | $ | 50 | $ | 79 | $ | 78 | $ | 88 | ||||||||||||
NASDAQ Retail Trade Stocks | $ | 100 | $ | 77 | $ | 92 | $ | 75 | $ | 109 | $ | 131 | $ | 100 | $ | 119 | $ | 97 | $ | 142 | $ | 170 | $ | 184 |
* | Closest preceding trading date to the beginning of the Company’s fiscal year. |
The historical stock performance shown on the graph is not necessarily indicative of future price performance.
Certain Relationships and Related Party Transactions
On May 3, 2005, the Company issued 24,600 shares of preferred stock for an aggregate purchase price of $24.6 million, and warrants to acquire initially up to 7.5 million shares of the Company’s Class A Common Stock in a private placement transaction (the “May Private Placement”) with investors, certain of whom had previously received securities convertible into the Company’s Class A Common Stock in connection with private placement transactions that occurred in June 2004 and January 2005. Messrs. Zimmerman and Duskin serve as Chief Executive Officer and Managing Director and Partner, respectively, of Prentice Capital Management, LP, (“Prentice”), which was one of the investors in the May Private Placement. Prentice paid a purchase price equal to $6,040,000 to the Company in exchange for receiving 6,040 shares of preferred stock and warrants to acquire initially up to 1,473,214 shares of the Company’s Class A Common Stock.
Mr. Siegel is a senior partner with the law firm of Akin Gump Strauss Hauer and Feld LLP (“Akin Gump”). In fiscal year 2005, the Company paid $1,600,000 for legal services received from Akin Gump.
In fiscal 2005, the Company purchased $600,000 of merchandise inventories from YM, Inc., a Canadian retail company owned by Mr. Gold. Also, in his role as merchandising consultant to the Company, Mr. Gold is significantly involved in purchasing decisions and terms negotiated with merchandise vendors for the Wet Seal concept. A substantial majority of these vendors also provide merchandise inventories to Mr. Gold’s Canadian retail businesses.
Section 16(a) Beneficial Ownership Reporting Compliance
The federal securities laws require the filing of certain reports by officers, directors and beneficial owners of more than 10%ten percent (10%) of the Company’s securities with the Securities and Exchange Commission. Specific due dates have been established and the Company is required to disclose in this Proxy Statement any failure to file by these dates.
Based solely on a review of copies of the filings furnished to the Company, the Company believes that during fiscal year 2004,2005, all such filing requirements were satisfied by the Company’s officers, directors and ten percent (10%) stockholders, except that two Formsother than one Form 4 for Jennifer Pritchard werefiled by Mr. Joel N. Waller with regard to Mr. Waller’s disposition of Class A Common Stock of the Company in one transaction, which was not filed on a timely basis due to report a grant sharesdelays in the execution of Class A Common Stock and restricted shares of Class A Common Stock, respectively, and athe agreement governing the transaction reflected in this Form 4 for each of Anne Zehren, Howard Gross and Henry D. Winterstern were not filed on a timely basis to report individual grants of shares of Class A Common Stock.
4.
OTHER MATTERS TO COME BEFORE THE 2006 ANNUAL MEETING
The Board of Directors knows of no other business to come before the Annual Meeting. However, if any other matters are properly brought before the Annual Meeting, the persons named in the accompanying form of proxy or their substitutes will vote in their discretion on such matters.
The cost of this solicitation or proxies will be borne by the Company. Arrangements may be made with brokerage houses, custodians, nominees and fiduciaries to send proxies and materials to their principals and, upon request, the Company will reimburse them for their expenses in so doing. The company has engaged MacKenzie Partners, Inc., as proxy solicitor, in connection with this Proxy Statement for which it will be paid a fee of $6,500, plus reimbursement of certain expenses.
STOCKHOLDER PROPOSALS FOR PRESENTATION AT 2006THE 2007 ANNUAL MEETING
If a stockholder of the Company wishes to present a proposal for consideration at the next annual meeting of stockholders, the proposal must be received at the principal executive offices of the Company no later than December 15, 2005,2006, to be considered for inclusion in the Company’s proxy statement and form of proxy for that annual meeting. A stockholder proposal will be considered untimely for consideration at the next annual meeting if it is not received by the Company at least 45 days prior to the date of the meeting.
Proposed Amendment to the
Restated Certificate Of Incorporation, as Amended, of
The Wet Seal, Inc.
Set forth below is the text of Article IV, Section 4.1 of the Restated Certificate of Incorporation of The Wet Seal, Inc., as proposed to be amended if Proposal 1 is approved by our stockholders:
“Section 4.1.Number of Shares. The total number of shares which the corporation shall have authority to issue is THREE HUNDRED TWELVE MILLION (312,000,000), consisting of “Common Stock” and “Preferred Stock” as follows:
(a)Preferred Stock. The total number of shares of Preferred Stock shall be TWO MILLION (2,000,000), having a par value of one cent ($0.01) per share, which may be issued from time to time in one or more series. The board of directors is hereby authorized to fix, by resolution or resolutions providing for the issue of any such series, the voting powers, if any, and the designation, preferences and rights of the shares in such series, and the qualifications, limitations or restrictions thereof, including, but not limited to, the following:
(1) the number of shares constituting that series and the distinctive designation thereof;
(2) the dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(3) the voting rights, if any, of shares of that series in addition to the voting rights provided by law, and the terms of such voting rights;
(4) the terms and conditions of the conversion privileges, if any, of shares of that series, including provision for adjustment of the conversion rate in such events as the board of directors shall determine;
(5) the terms and conditions of redemption, if shares of that series shall be redeemable, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(6) the terms and amount of any sinking fund for the redemption or purchase of shares of that series, if any;
(7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights or priority, if any, of payment of shares of that series; and
(8) any other relative rights, preferences and limitations of that series.
Dividends on outstanding Preferred Stock shall be declared and paid, or set apart for payment, before any dividend shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period.
(b)Common Stock. The total number of shares of Common Stock shall be THREE HUNDRED TEN MILLION (310,000,000), divided into two classes designated as Class A Common Stock and Class B Common Stock, as follows: the total number of authorized shares of Class A Common Stock shall be THREE HUNDRED MILLION (300,000,000), and each share of Class A Common Stock shall have a par value of ten cents ($0.10); and the total number of authorized shares of Class B Common Stock shall be TEN MILLION (10,000,000), and each share of Class B Common Stock shall have a par value of ten cents ($0.10).”
Proposed Amendment to
The Wet Seal, Inc. 2005 Stock Incentive Plan
The Wet Seal, Inc. 2005 Stock Incentive Plan is hereby amended by adding new Section 3.3 to read as follows:
3.3Subject to adjustments in accordance with Section 12, in addition to the shares of Stock available for grant pursuant to Section 3.1 of the Plan, an additional 2,500,000 shares of Stock shall be available for the grant of Awards under the Plan;providedthat, for purposes of this limitation, any Stock subject to an Option or Award which is canceled, forfeited or expires prior to exercise or realization shall again become available for issuance under the Plan (the “Special Reserve”).
Charter of the Compensation Committee
of the Board of Directors of
The Wet Seal, Inc.
As ratified by the Board of Directors
May 12, 2005AUDIT COMMITTEE CHARTER
I. |
The CompensationAudit Committee (the “Committee”) ofis established by and amongst the Board of Directors of The Wet Seal, Inc. (the “Company”(“the Company”) is appointedfor the primary purpose of assisting the board with:
Consistent with this function, the Audit Committee should encourage continuous improvement of, and should foster adherence to, the Company’s policies, procedures and practices at all levels. The Audit Committee should also provide an open avenue of communication among the independent auditors, financial and senior management, the internal auditing function, and the Board of Directors.
The Audit Committee has the authority to obtain advice and assistance from the Company’s outside legal, accounting, or other advisors as deemed appropriate to perform its duties and responsibilities and may retain independent counsel, experts or advisors that the Committee believes to be necessary or appropriate.
The Company shall provide appropriate funding, as determined by the Audit Committee, for compensation to the independent auditor and to any advisers that the audit committee chooses to engage.
The Audit Committee will primarily fulfill its responsibilities by carrying out the activities enumerated in Section III of this Charter. The Audit Committee will report regularly to the Board of Directors regarding the execution of its duties and responsibilities. The powers and responsibilities delegated by the Board of Directors (the “Board”) to discharge the Board’sAudit Committee in this Charter or otherwise exercised and carried out by the Audit Committee as it deems appropriate without requirement of approval of the Board of Directors, and any decision made by the Audit Committee (including any decision to exercise or refrain from exercising any of the powers delegated hereunder) shall be at the Audit Committee’s sole discretion. While acting within the scope of the powers and responsibilities with respectdelegated to it, the Audit Committee shall have and may exercise all formsthe powers and authority of compensationthe Board of Directors. To the fullest extent permitted by law, the Audit Committee shall have the power to determine which matters are within the scope of the powers and responsibilities delegated to it.
Notwithstanding the foregoing, the Audit Committee’s responsibilities are limited to oversight. Management of the Company is responsible for the preparation and integrity of the Company’s executive officers, to administerfinancial statements as well as the Company’s equity incentive plansfinancial reporting process, accounting policies, internal audit function, internal accounting controls and disclosure controls and procedures. The independent auditor is responsible for employees, to produceperforming an annual report on executive compensation for use inaudit of the Company’s annual proxy statement and to perform such other functionsfinancial statements, expressing an opinion as the Board may from time to time assign to the Committee. This Charter sets forthconformity of such annual financial statements with generally accepted accounting principles and reviewing the authority andCompany’s quarterly financial statements. It is not the responsibility of the Audit Committee for approvingto plan or conduct audits or to determine that the Company’s financial statements and evaluating executive officer compensation arrangements, plans, policiesdisclosure are complete and programsaccurate and in accordance with generally accepted accounting principles and applicable laws, rules and regulations. Each member of the Audit Committee shall be entitled to rely on the integrity of those persons within the Company and for administeringof the professionals and experts (including the Company’s equity incentive plansinternal auditor (or others responsible for employees whether adopted priorthe internal audit
function, including contracted non-employees or audit or accounting firms engaged to provide internal audit services) and the Company’s independent auditor) from which the Audit Committee receives information and, absent actual knowledge to the contrary, the accuracy of the financial and other information provided to the Audit Committee by such persons, professionals or afterexperts.
Furthermore, auditing literature, particularly Statement of Accounting Standards No. 71, defines the dateterm “review” to include a particular set of adoptionrequired procedures to be undertaken by independent auditors. The members of the Audit Committee are not independent auditors, and the term “review” as used in this Charter (the “Stock Plans”).is not intended to have that meaning and should not be interpreted to suggest that the Audit Committee members can or should follow the procedures required of auditors performing reviews of financial statements.
II. |
The Audit Committee will consistshall be comprised of three or more members, with the exact number beingdirectors as determined by the Board. EachBoard, each of whom shall be independent directors (as defined by all applicable rules and regulations of the members of the Committee will be (i) an “independent director” as defined under the NASDAQ Listing Standards, as they may be amended from time to time (the “Nasdaq Rules”), except as may otherwise be permitted by such rulesStock Market and (ii) a “Non-Employee Director,” as defined in Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Ifamended), and free from any such person does not qualify as an “outside director” withinrelationship (including disallowed compensatory arrangements) that, in the meaningopinion of Treasury Regulation 1.162-27(e)(3) at the time that the Committee is granting “qualified performance-based compensation” within the meaning of Treasury Regulation 1.162-27(e)(2), such person shall recuse himself or herself from considering any compensation arrangement for which the Company will seek to so qualify. In such event, the Board, shall appoint onewould interfere with the exercise of his or more “outside directors” to the Committee suchher independent judgment as that it is comprised solely of two or more “outside directors” in order to satisfy the requirements of Section 162(m)a member of the Internal Revenue Code of 1986, as amended.Committee. All members of the Committee willshall be appointedable to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. At least one member of the Committee shall be an “audit committee financial expert” in compliance with the criteria established by the SEC and shall serve athave past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background which results in the discretionindividual’s financial sophistication, including being, or having been, a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. The existence of such member(s) shall be disclosed in periodic filings as required by the Board.
SEC. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Company or an outside consultant.
The Board will select members of the Committee who willshall be approvedelected by a majority votethe Board on the recommendation of the membersNominating and Corporate Governance Committee at the annual organizational meeting of the Board.Board to serve until the next annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Committee members will serve during their respective term as a director, subject to earlier removalmay be removed from the Committee, with or without cause, by a majority vote of the Board. Unless a chairChair is elected by the full Board, the members of the Committee may designate a chairChair by majority vote of the full Committee membership.
The Chair, or in his or her absence, a member designated by the Chair, shall preside at each meeting of the Audit Committee and set the agendas for the Audit Committee meetings. The Audit Committee shall have the authority to delegate responsibilities listed herein to subcommitteesestablish its own rules and procedures for notice and conduct of its meetings so long as they are not inconsistent with any provisions of the Company ifCompany’s bylaws that are applicable to the Committee.
The Committee shall meet at least once during each fiscal quarter, or more frequently as circumstances dictate. Each regularly scheduled meeting shall conclude with an executive session of the Committee determinesabsent members of management and on such delegation would be interms and conditions as the best interestCommittee may elect. As part of its job to foster open communication, the Committee should meet periodically with management, the director of the Company.internal auditing function and the independent auditors in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. In addition, the Committee shall meet quarterly with the independent auditors and management to discuss the annual audited financial statements and quarterly financial statements, including the Company’s disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
III. | RESPONSIBILITIES AND DUTIES |
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports/Accounting Information Review
The principal processes of the Committee in carrying out its oversight responsibilities are set forth below. These processes are set forth as a guide with the understanding that the Committee may supplement them as appropriate and may establish policies and procedures from time to time that it deems necessary or advisable in fulfilling its responsibilities.
2. |
3. |
4. |
5. |
6. |
Independent Auditors
7. |
8. |
9. |
10. | At least annually, obtain and review a report by the independent auditor describing: |
11. | Review and preapprove both audit and nonaudit services to be provided by the independent auditor (other than with respect tode minimis exceptions permitted by the Sarbanes-Oxley Act of 2002). This duty may be delegated to one or more designated members of the audit committee with any such preapproval reported to the audit committee at its next regularly scheduled meeting. Approval of nonaudit services shall be disclosed to investors in periodic reports required by Section 13(a) of the Securities Exchange Act of 1934. |
12. | Set clear hiring policies, compliant with governing laws or regulations, for employees or former employees of the independent auditor. |
13. | Confirm with the independent auditor that the independent auditor is in compliance with the partner rotation requirements established by the SEC. |
Financial Reporting Processes and Accounting Policies
14. | In consultation with the independent auditors and the internal auditors, review the integrity of the organization’s financial reporting processes (both internal and external), and the internal control structure (including disclosure controls). |
15. | Review with management major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control concerns. |
16. | Review analyses prepared by management (and the independent auditor as noted in item 9 above) setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements. |
17. | Review with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. |
18. | Review and approve all related party transactions. |
19. | Establish and maintain procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting, or auditing matters. |
20. | Establish and maintain procedures for the confidential, anonymous submission by Company employees regarding questionable accounting or auditing matters. |
Internal Audit
21. | Review and advise on the selection and removal of the internal audit director, or if an outsourced function and director, the firm providing the internal audit function. |
22. | Review activities, organizational structure, and qualifications of the internal audit function. |
23. | Annually, review and recommend changes (if any) to the internal audit charter. |
Other Compliance Functions
24. | Periodically review with the internal audit director any significant difficulties, disagreements with management, or scope restrictions encountered in the course of the function’s work. |
25. | Establish, review and update periodically a Code of Ethical Conduct and ensure that management has established a system to enforce this Code. Ensure that the code is in compliance with all applicable rules and regulations. |
26. | Review management’s monitoring of the Company’s compliance with the organization’s Ethical Code, and ensure that management has the proper review system in place to ensure that the Company’s financial statements, reports and other financial information disseminated to governmental organizations and the public satisfy legal requirements. |
27. | Review, with the Company’s counsel, legal compliance matters including corporate securities trading policies. |
28. | Review, with the Company’s counsel, any legal matter that could have a significant impact on the Company’s financial statements. |
29. | Discuss with management and the independent auditor any correspondence from or with regulators or governmental agencies, any employee complaints or any published reports that raise material issues regarding the Company’s financial statements, financial reporting processes, accounting policies or internal audit function. |
30. | Review the Company’s policies and procedures with respect to |
Other Responsibilities
31. | Review with the independent auditors, the internal auditing department and the management the extent to which changes or improvements in financial or accounting practices, as approved by the Audit Committee, have been implemented. This review will be conducted at an appropriate time subsequent to implementation of changes or improvements, as decided by the Committee. |
32. |
33. |
34. |
Meetings
Exhibit B
BUSINESS ETHICS
POLICY
AND
CODE OF CONDUCT
a charter for ethical conduct
The Wet Seal, Inc.
Table of the Committee will be held from time to time, but at least twice each year, in response to the needsContents
Wet Seal, Inc. Code of the Board or as otherwise determined by the Chairman of such Committee, and the Committee shall provide reports to the Board. The Chairperson of the Committee shall be responsible for leadership of the Committee, including preparing the agenda, presiding over Committee meetings, making Committee assignments and reporting the Committee’s actions to the Board from time to time (but at least once each year) as requested by the Board.
The Committee may request that any directors, officers or employees of the Company, or other persons whose advice and counsel are sought by the Committee, attend any meeting of the Committee to provide such pertinent information as the Committee requests.Conduct
INTRODUCTION | B-1 | |
ACCURATE AND COMPLETE ACCOUNTING | B-1 | |
RECORD RETENTION | B-2 | |
FAIR DEALING | B-2 | |
LEGAL COMPLIANCE | B-2 | |
CONFLICTS OF INTEREST | B-2 | |
Gifts and Entertainment | B-3 | |
Interests in Competitors, Suppliers and Third Parties | B-3 | |
Indirect Interests or Relationships | B-4 | |
SECURITIES LAWS | B-4 | |
CORPORATE OPPORTUNITIES | B-4 | |
SAFEGUARDING CORPORATE ASSETS | B-5 | |
PROHIBITION AGAINST HARASSMENT | B-5 | |
ASKING FOR HELP AND REPORTING CONCERNS | B-5 | |
INQUIRY FORM | B-6 | |
CONFIRMATION CERTIFICATE | B-7 |
Note: This Code and related policies are current as of May 1, 2006. In adopting and publishing these guidelines, you should note that (1) in some respects our policies may exceed minimum legal requirements or industry practice, (2) nothing contained in this Code should be construed as a binding definition or interpretation of a legal requirement or industry practice, and (3) any action by our employees or agents in violation of the law or this Code is beyond the scope of such person’s authority or duty and is not an act by us or on our behalf.
To obtain additional copies of this Code, you may contactyour supervisor or the Corporate Compliance Officer at 1-888-679-3964 ext. 4796.
Introduction
The Wet Seal, Inc.Business Ethics Policy and Code of Conduct (“the Code” or “the Policy”) is our charter for ethical conduct. The Wet Seal, Inc. (“the Company”) is in compliance with Federal laws and has established this Code to describe the Company’s expectations for business conduct. The Code applies to all actions of every trustee and every employee, from those who perform entry level functions to senior officers. All officers and managers are responsible for ensuring that employees under their supervision are familiar with the Code and the Policy and are consistently applying it in all business conduct.
In response to recently enacted laws, the Company has established means by which you can confidentially communicate any observations of code violations—in particular accounting and financial reporting controls, auditing practices, or conflicts of interest and other concerns listed herein—without fear of retaliation by the Company or its employees. Retaliation will not be tolerated. To report a concern, you may contact your supervisor or your supervisor’s manager.
If you are aware of or observed improper accounting or financial reporting, you may call our Ethics Hotline at 1-800-435-1445 to speak with a live representative, 24 hours a day from a third party, Global Compliance. These calls are reported back to the Company’s Corporate Compliance Officer, Ms. Pam O’Connor, Senior Vice President of Human Resources. Any investigation of such complaints will be treated as confidentially as possible.
If you have concerns related to other matters covered by the Code, such as conflicts of interest and business ethics, you may call and leave an anonymous voicemail message at 1-888-679-3964 ext. 4796.
Additionally, in either case, you may also speak with our Corporate Compliance Officer, who is authorized to assist you in your report and discuss such issues with you. Please contact Ms. Pam O’Connor, at 949-699-4079.
As far as your personal actions, when you are faced with a situation and you are not clear as to what action you should take, ask yourself the following questions:
Accurate and Complete Accounting
Our accounting and financial reporting policies must follow Generally Accepted Accounting Principles (GAAP) and other laws and regulations such as those of the Internal Revenue Service and the Securities and Exchange Commission. Laws and regulations require that the Company have and maintain internal controls to ensure the integrity of its financial statements. You are required to adhere to the following policies:
Suspected breaches of improper treatment of an accounting transaction must be reported and investigated. We will not retaliate against any employee for filing a good faith complaint or for cooperating in an investigation of an alleged violation, and will not tolerate or permit retaliation by management, employees or co-workers.
Record Retention
We will retain all books, records and statements in accordance with our record retention policies and all applicable laws and regulations. It is a crime to alter, destroy, modify or conceal documentation or other objects that are relevant to litigation or a government investigation, including not only formal reports but all less formal data such as e-mails, expense reports and internal memos. If you are informed that information in your possession is the subject of litigation or a government investigation, or if you have other reason to believe that such information may be involved in a judicial proceeding, no matter whether you think it is relevant or not, you are prohibited from making any effort to alter, destroy, modify or conceal that information.
Fair Dealing
We are committed to maintaining the highest levels of integrity and fairness within our company. You should not take unfair advantage of anyone (customers, contractors and even competitors) through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice. If you are unclear regarding what constitutes an unfair-dealing practice, please ask your direct manager or the senior manager of your division.
Legal Compliance
The CommitteeCompany behaves in an ethical manner and complies with all laws, rules and government regulations that are applicable to our business. The Company expects the same from its employees.
This discussion is not comprehensive and you are expected to familiarize yourself with all laws and regulations relevant to your position with us, as well as all our related written policies on these laws and regulations. Supervisors are responsible for ensuring that employees under their supervision have access to and are familiar with these laws and regulations.
Conflicts of Interest
All of us must be able to perform our duties and exercise judgment on behalf of the Company without influence or impairment, or the appearance of influence or impairment, due to a non-company activity, interest or relationship.
Conflicts of interest arise:
Gifts and Entertainment
Commercial bribery is illegal. The following actions may be deemed, or suggest the appearance of commercial bribery when:
As a general rule, and subject to the discussion below, our employees may not accept favors, gifts, free services, discounts, entertainment, or special considerations of any kind in connection with a Company business activity. You should not accept loans from any persons or entities having or seeking our business.
If you are offered a gift or benefit, you must report it to your supervisor (who will maintain written minutesreport this to the Corporate Compliance Officer). Gifts, services, discounts or entertainment with low value may be allowed on a case by case basis but will in no event be allowed if they are for the sole benefit of the employee or if they are over a value of $250. To the extent practical, disallowed but received gifts, services, discounts, etc., will be shared within the Company or donated to charity. A gift of cash or its meetings,equivalent, for any value, is not allowed.
Entertainment or favors to the Company’s customers, prospective customers, and will filepublic officials and others who are affiliated with such minutes withindividuals should be avoided unless pre-approved by your supervisor.All funds expended for business entertainment and gifts must be fully and accurately documented and reflected in the books and records of the Company.
A Committee member (includingEmployees working or traveling in foreign countries should obtain the Chairperson) may be removed at any time, withprior specific approval of our legal counsel before paying for certain privileges, services or without cause, by the Board. No person may be made a member of the Committee if his or her service on the Committeeactions that would violate any restriction on service imposed by any rule or regulation ofcost nothing in the United States Securitiesor Canada. If circumstances make such prior approval impossible, the payment should be disclosed to your supervisor as soon afterward as feasible.
None of our funds or assets may be contributed to any political candidate or political party, unless such contribution is expressly permitted by law. Employees must not be reimbursed by the Company in any way, directly or indirectly, for personal political contributions.
Interests in Competitors, Suppliers and Exchange CommissionThird Parties
You should not have any direct or indirect interest in any transaction to which the Nasdaq Stock Market.Company will be a party if your interest or relationship could influence, or appear to influence, your actions with regard to your Company duties. You should not have any financial or other interest in any competitor, vendor, supplier (i.e., someone who provides products or services to the Company) or third party with whom you could influence or appear to influence the Company’s decision to do business (or proposing to do business).
If any of the following situations pertain to you, notify our Corporate Compliance Officer, who will ensure that the situation is reviewed to determine whether the Company’s business relationship with the relevant vendor, etc., is in the best interest of the Company:
The Committee shall on an annual basis evaluate its performance, which evaluation should among other things: (a) compare its performance
the manner in which they were discussedour competitors, vendors, suppliers or debated, the quality of the written materials and presentations and whether the number and length of meetings of the Committee were adequate for it to complete its work in a thorough and thoughtful manner.
The Committee shall report the results of its evaluation to the Board, including any recommended amendments to this Charter and any recommended changes to the Company’s or the Board’s policies or procedures.
The Committee may conduct or authorize studies of matters within the Committee’s scope of responsibilities as described above, and may retain, at the expense of the Company, independent counsel or other consultants necessary to assist the Committee in any such studies. The Committee shall have sole authority to retain and terminate any compensation consultant to be used to survey the compensation practices in the Company’s industry and to provide advice so that the Company can maintain its competitive ability to recruit and retain highly qualified personnel. The Committee shall have the sole authority to negotiate and approve the fees and retention terms of any compensation consultant retained.
Nothing contained in this Charter is intended to expand applicable standards of liability under statutory or regulatory requirements for the directors of the Company or members of the Committee. The purposes and responsibilities outlined in this Charter are meant to serve as guidelines rather than as inflexible rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities. This Charter, and any amendments thereto, shall be displayed on the Company’s web site and a printed copy of such shall be made available to any shareholder of the Company who requests it.
EXHIBIT DIndirect Interests or Relationships
CharterYou should not be in a position to influence the Company’s decision to engage in business directly or indirectly with one of the
Nominatingyour relatives. The definition of a “relative” includes your spouse, child, parent, sibling, sibling’s spouse, son-in-law, daughter-in-law, other in-law and Governance Committeeany relative who resides with you or person sharing your home. (For more information, you may refer to our Employee Handbook, Hiring Relatives Section 3.B) You must disclose to our Corporate Compliance Officer any situation in which one of your relatives has an interest in a competitor, supplier or party to any transaction involving the
Board of Directors of Company. The Wet Seal, Inc.
As ratified byCorporate Compliance Officer will then ensure that the Board of Directors
May 12, 2005
The purposes ofsituation is reviewed to determine whether the Nominating and Governance Committee (the “Committee”) of the Board of Directors (the “Board”) of The Wet Seal, Inc. (the “Company”) shall be to recommend to the Board individuals qualified to serve as directors of the Company and on committees of the Board; to advise the Board with respect to the Board composition, compensation, procedures and committees; to develop and recommend to the Board a set of corporate governance principles applicable to the Company; and to oversee the evaluation of the Board. The Committee shall report to the Board on a regular basis and not less than once per year.
The Committee shall be comprised of two or more directors,Company’s business relationship with the exact number being determined by the Board. Each of the members of the Committee will be an “independent director” as defined under the Nasdaq Listing Standards, as they may be amended from time to time (the “Nasdaq Rules”)relevant vendor, etc., except as may otherwise be permitted by such Rules.
Notwithstanding the above paragraph, if the Committee is comprised of at least three members, one director who is not “independent” as defined under the Nasdaq Rules and is not a current officer or employee or a “Family Member” (as defined under the Nasdaq Rules) of an officer or employee, may be appointed to the Committee if the Board, under exceptional and limited circumstances, determines that such individual’s membership on the Committee is required by the best interests of the Company and its stockholders, and the Board discloses, in the proxy statement for the next annual meeting subsequent to such determination, the nature of the relationship and the reasons for the determination. A member appointed under this exception may not serve longer than two years.
The Board will select members of the Committee who will be approved by a majority vote of the members of the Board. Committee members will serve during their respective term as a director, subject to earlier removal by a majority vote of the Board. Unless a chair is elected by the full Board, the members of the Committee may designate a chair by majority vote of the Committee membership.
The Committee shall have the authority to delegate responsibilities listed herein to subcommittees of the Company if the Committee determines such delegation would be in the best interest of the Company.
The Committee may fix its own rulesBecause we are a public company, we are subject to a number of procedure, which shall be consistentfederal laws concerning the purchase and sale of our shares and other publicly traded securities. These Federal Laws prohibit and punish anyone who gives or releases to anyone data or information of a confidential nature concerning the Company.
Employees who know important information stemming from their employment with the Bylaws of the Company and this Charter. The Committee shall meet at least two times annually or more frequently as circumstances or such rules of procedure as it may adopt require. The Chairperson of the Committee shall be responsible for leadership of the Committee, including preparing the agenda, presiding over Committee meetings, making Committee assignments and reporting the Committee’s actionsnot generally known to the Board from time to time (but at least once each year)public (legally known as requested by the Board.
The Committee may request that any directors, officers or employees of“material undisclosed information”) about the Company or any other persons whose advicecorporation, including customers, suppliers, or competitors, could be found to be in violation of such laws and counsel are soughtregulations if they take advantage of that information by:
Important information includes but is not limited to significant new products or discoveries, sales and earnings forecasts, major contracts, plans for stock splits, and acquisitions or mergers. Such information in the case of another corporation would also include knowledge that the other corporation will enter into or is negotiating for a contract important to it for the sale of goods and services to or by the Committee, attend any meetingCompany.
Employees shall not, without the proper authority, give or release to anyone data or information of a confidential nature concerning the Company. Employees must always use the highest care to protect this information from outside parties and other employees that are not authorized to see the information. Each employee is always encouraged to seek his or her supervisor’s guidance in maintaining the confidentiality of such information.
For more information about our policies concerning the securities laws, you should refer to our “Corporate Policy and Procedure on Insider Trading and Disclosure of Information to the Public for Employees of The Wet Seal, Inc.” To obtain a copy of the Committeepolicy, or if you have any questions concerning the securities laws or about our policies with regard to provide such pertinentthose laws, or regarding the correct ethical and legal action to take in a situation involving material inside information, asplease contact the Committee requests.Corporate Compliance Officer. A copy of this policy is also available at our company website, www.wetsealinc.com.
Corporate Opportunities
Following each of its meetings, the Committee shall deliver a report on the meetingBusiness opportunities relating to the Board, including a summary descriptionCompany’s line of actions takenbusiness can only be utilized by the Committee atCompany itself and not by employees acting in a private manner. Any business opportunity that fits into the meeting. strategic plans or that satisfies our commercial objectives also belongs only to the Company. Unless the terms of our declaration of trust or bylaws dictate otherwise, you may not direct these kinds of business opportunities to our competitors, to other third parties or other businesses that you own or are affiliated with in any way. Under no circumstances may an employee exploit the Company’s business opportunities for their own personal gain.
Safeguarding Corporate Assets
The Committee shall keep written minutesCompany’s assets and funds can only be used for legitimate business purposes to advance our strategic objectives. Each employee is responsible for any Company assets and funds in their possession or under their control. Each employee must diligently work to protect these assets and funds from theft, misuse and waste.
Our assets and funds may never be used for an unlawful purpose. Carefully safeguarding our assets makes us more efficient and avoids the potential for loss and embarrassment to you and us. If you become aware of its meetings, which minutestheft, waste or misuse of our assets or funds or have any questions about your proper use of them, you should speak immediately with your supervisor or our Corporate Compliance Officer.
Prohibition Against Harassment and Hostile Work Environment
It is Wet Seal’s policy that all employment relationships shall be maintainedconducted in an environment that is not hostile or offensive. Harassment based on race, color, religion, ancestry, marital status, gender, gender identity and perceived gender, pregnancy, sex, sexual orientation, national origin, political affiliation, military status, age or mental/physical disability, or any other basis prohibited by applicable local, state, or federal law will not be tolerated at Wet Seal.
If you believe that you have been subjected to harassment by a supervisor, Manager, fellow Employee, customer, client, vendor or any other person in connection with your employment at Wet Seal, you should immediately bring the booksmatter to the attention of your supervisor, a Manager, or Human Resources.
All complaints of harassment will be investigated promptly and, recordswhere necessary, corrective action will be taken. Any investigation of such complaints will be treated as confidentially as possible. No Employee will be punished or suffer any adverse employment action as a result of bringing any good faith harassment complaint to the Company’s attention.
Any supervisor, agent, or other Employee who is found to have engaged in harassment or retaliation against an Employee for exercising rights protected by this policy will be subject to appropriate discipline, up to and including discharge. If the individual found to have engaged in harassing behavior does not work for the Wet Seal, the Wet Seal will take prompt appropriate action toward preventing any further harassment.
Asking For Help and Reporting Concerns
These polices are imposed by the Board of Directors and reflect our interpretation of the legal requirements. Your failure to adhere to the Code could result in civil or criminal penalties and/or disciplinary action up to and including termination of employment.
When in doubt, ask. Whenever you have a question or concern, are unsure about what the appropriate course of action is, or if you suspect that a violation of the law or this Code has occurred, please talk with your supervisor, your supervisor’s manager, or the Corporate Compliance Officer.
Again, the Company has established means by which you can confidentially communicate any observations of code violations without fear of retaliation by the Company or its employees. Retaliation will not be tolerated. To report a concern, you may contact your supervisor or your supervisor’s manager. If the concern is related to improper accounting or financial reporting, you may call the Ethics Hotline at 1-800-435-1445. This hotline is monitored by a third party. If the concern is related to another sensitive area, such as a potential conflict of interest or other business ethics questions, you may call the Wet Seal, Inc. at 1-888-679-3964 ext. 4796. In either case, you may also speak with our Corporate Compliance Officer who is authorized to assist you in your report and discuss such issues with you. You may contact Ms. Pam O’Connor, the Corporate Compliance Officer, at 949-699-4079.
Nothing herein is intended to give the impression that The Wet Seal, Inc. is not an “at will” employer. Rather, this Code addresses those items specifically named herein and emphasizes the Company’s commitment to ethical conduct throughout the Company.
Inquiry Form-Confidential
If you have a question or concern as to whether specific behavior is a violation of corporate policy, please fill out the following inquiry form and return it to the Human Resources Department, Attention Corporate Compliance Officer, The Wet Seal, Inc., 26972 Burbank, Foothill Ranch, CA 92610.
Name | ||
Date | ||
Please describe your question or concern in as much detail as possible. | ||
If you would like us to contact you or respond to you at home, please provide the following information: |
Home Address | ||
Phone No. |
I certify that the information stated above is true and correct to the best of my knowledge. I understand that any disclosures I make are subject to review and investigation. I understand that my disclosures may be reviewed by other appropriate company personnel who will use said information to conduct a reasonable inquiry.
The CommitteeI understand that the disclosures that I make will maintain written minutes of its meetings,be held confidential and I will file such minutes with the books and records of the Company.suffer no retaliation for reporting concerns.
Signature | ||
Date |
Exhibit B
Confirmation Certificate
I have been provided with a copy of the 5/1/06—Code of Conduct of The Wet Seal, Inc. and I acknowledge that I have read the Code and understand my responsibilities under it. I further acknowledge that I should follow the compliance procedures described in the Code if I have any questions or concerns.
Employee Name (Please Print) |
Employee Signature |
Date |
Store Number, City and State |
In carrying out its oversight responsibilities,
ANNUAL MEETING OF STOCKHOLDERS OF
THE WET SEAL, INC.
June 6, 2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
êPlease detach along perforated line and mail in the Committee’s policies and procedures should remain flexible to enable the Committee to react to changes in circumstances and conditions so as to ensure the Company remains in compliance with applicable legal and regulatory requirements. In addition to such other duties as the Board may from time to time assign, the Committee shall have the following responsibilities:envelope provided.ê
n
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL EIGHT NOMINEES AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HEREx |
The Committee shall have the following goals and responsibilities with respect to Board candidates and nominees:
FOR | AGAINST | ABSTAIN | ||||||||||||
1. | Election of Directors - The Board recommends a vote FOR each of the following nominees: | 2. | Ratification of the Appointment of Deloitte & Touche LLP as independent auditors for fiscal year 2006. | ¨ | ¨ | ¨ | ||||||||
NOMINEES: | ||||||||||||||
¨ | FOR ALL NOMINEES | m Jonathan Duskin m Sidney M. Horn | 3. | Transaction of any other business as may properly come before the Annual Meeting or any adjournment or postponements thereof. | ||||||||||
¨ | WITHHOLD AUTHORITY FOR ALL NOMINEES | m Harold D. Kahn m Kenneth M. Reiss m Alan Siegel | ||||||||||||
¨ | FOR ALL EXCEPT (See instructions below) | m Joel N. Waller m Henry D. Winterstern m Michael Zimmerman
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INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:l
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To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. ¨ |
Signature of Stockholder | Date: | Signature of Stockholder | Date: |
Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the |
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PROXY | THE WET SEAL, INC. | PROXY |
ANNUAL MEETING
Solicited on behalf of the Board of Directors
for the Annual Meeting to be held on June 6, 2006
The Committee shall haveundersigned, a stockholder in The Wet Seal, Inc., a Delaware corporation, appoints Joel N. Waller and John J. Luttrell, or either of them, as his true and lawful agents and proxies, each with full power of substitution, to vote all shares of stock that the following goalsundersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders of The Wet Seal, Inc. to be held at The Island Hotel, 690 Newport Center Drive, Newport Beach, California 92660, on Tuesday, June 6, 2006, at 10:00 a.m., local time, and responsibilitiesany adjournment or postponement thereof with respect to the compositionfollowing matters which are more fully explained in our Proxy Statement dated May 3, 2006, receipt of which is acknowledged by the undersigned.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL EIGHT NOMINEES AND FOR PROPOSAL 2 AS MORE SPECIFICALLY SET FORTH IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(Continued and procedures of the Board as a whole:to be Signed on Reverse Side)
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The following shall be the goals and responsibilities of the Committee with respect to the committee structure of the Board:
The following shall be the goals and responsibilities of the Committee with respect to corporate governance:
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The Committee shall be responsible for overseeing the annual evaluation of the Board as a whole. The Committee shall establish procedures to allow it to exercise this oversight function.
A Committee member (including the Chairperson) may be removed at any time, with or without cause, by the Board. No person may be made a member of the Committee if his or her service on the Committee would violate any restriction on service imposed by any rule or regulation of the United States Securities and Exchange Commission or the Nasdaq Stock Market.
The Committee shall formulate and recommend to the Board for adoption a policy regarding attendance of directors at annual meetings of the Company’s stockholders.
The Committee shall on an annual basis evaluate its performance, which evaluation should among other things: (i) compare its performance with the requirements of this Charter, (ii) evaluate its performance against its goals and objectives for the previous year, and (iii) set forth its goals and objectives for the upcoming year. The evaluation should include a review and assessment of the adequacy of this Charter. The Committee shall address all matters that it considers relevant to its performance, including at least the following: the adequacy, appropriateness and quality of the information and recommendations presented by the Committee to the Board, the manner in which they were discussed or debated, the quality of the written materials and presentations and whether the number and length of meetings of the Committee were adequate for it to complete its work in a thorough and thoughtful manner.
The Committee shall report the results of its evaluation to the Board, including any recommended amendments to this Charter and any recommended changes to the Company’s or the Board’s policies or procedures.
The Committee may conduct or authorize investigations into or studies of matters within the Committee’s scope of responsibilities, and may retain, at the Company’s expense, such independent counsel or other advisors as it deems necessary to assist the Committee in any such studies. The Committee shall have the sole authority to retain or terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms, such fees to be borne by the Company.
Nothing contained in this Charter is intended to expand applicable standards of liability under statutory or regulatory requirements for the directors of the Company or members of the Committee. The purposes and responsibilities outlined in this Charter are meant to serve as guidelines rather than as inflexible rules and the Committee is encouraged to adopt such additional procedures and standards as it deems necessary from time to time to fulfill its responsibilities. This Charter, and any amendments thereto, shall be displayed on the Company’s web site and a printed copy of such shall be made available to any stockholder of the Company who requests it.
Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL SIX NOMINEES AND “FOR” PROPOSALS 1, 2 AND 4.
1. To approve an amendment to our Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of our Class A Common Stock from 150,000,000 to 300,000,000. FOR
AGAINST
ABSTAIN
2. To approve an Amendment No. 1 to The Wet Seal, Inc. 2005 Stock Incentive Plan increasing the number shares of Class A common stock available for issuance from 10,000,000 to 12,500,000. FOR
AGAINST
ABSTAIN
3. Election of directors--The Board recommends a vote FOR each of the following nominees:
1. Sidney M. Horn
2. Harold D. Kahn
3. Kenneth M. Reiss
4. Alan Siegel
5. Joel N. Waller
6. Henry D. Winterstern
For all nominees except vote withheld from the following nominees (if any):
________________________________________ FOR ALL
NOMINEES
WITHHELD
FROM ALL
NOMINEES
4. Ratification of the appointment of Deloitte & Touche LLP, an independent registered public accounting firm, as independent auditors for fiscal year 2005. FOR
AGAINST
ABSTAIN
5. Transaction of any other business as may properly come before the Annual Meeting or any adjournment or postponements thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. If signer is a corporation, please give full corporate name and have a duly authorized officer sign stating title. If signer is a partnership, please sign in partnership name by authorized person.
Signature: Date: Signature: Date: