| Sincerely, | ||
 | ||
| Samuel J. Furrow | ||
| CHAIRMAN OF THE BOARD OF DIRECTORS JOE'S JEANS INC. |
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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
| Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
Check the appropriate box: | ||
ý | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
o | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 | |
| JOE'S JEANS 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): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
| (1) | Title of each class of securities to which transaction applies: | |||
| (2) | Aggregate number of securities to which transaction applies: | |||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
| (4) | Proposed maximum aggregate value of transaction: | |||
| (5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
| (2) | Form, Schedule or Registration Statement No.: | |||
| (3) | Filing Party: | |||
| (4) | Date Filed: | |||
JOE'S JEANS INC.
2340 South Eastern Avenue
Commerce, California 90040
(323) 837-3700
September 8, 2011February 24, 2014
Dear Stockholder:
You are cordially invited to attend the 20112014 annual meeting of stockholders of Joe's Jeans Inc., or Joe's, which will be held at the Sofitel Hotel Los Angeles, 8555 Beverly Boulevard, Los Angeles, California 90048, on Wednesday, October 26, 2011.Thursday, May 8, 2014. The 20112014 annual meeting of stockholders will begin promptly at 9:00 a.m. local time.
The accompanying notice of annual meeting and proxy statement, which you are urged to read carefully, provides important information regarding the business to be conducted at the annual meeting.
You are requested to complete, date and sign the enclosed proxy card and promptly return it in the enclosed envelope or vote by telephone or Internet, whether or not you plan to attend the annual meeting. If you do attend the meeting, you may vote in person even if you have previously submitted a proxy card. REGARDLESS OF THE NUMBER OF SHARES YOU OWN OR WHETHER YOU PLAN TO ATTEND THE ANNUAL MEETING, IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED.Regardless of the number of shares you own or whether you plan to attend the annual meeting, it is important that your shares be represented and voted. If you hold your shares in "street name" (that is, through a broker, bank or other nominee), please complete, date and sign the voting instruction cardform that has been provided to you by your broker, bank or other nominee and promptly return it in the enclosed envelope or review the instructions in the materials forwarded by your broker, bank or other nominee regarding the option if any, to vote on the Internet or by telephone. If you hold your shares directly and plan to attend the meeting in person, please remember to bring a form of personal identification with you and, if you are acting as a proxy for another stockholder, please bring written confirmation from the record owner that you are acting as a proxy. If you hold your shares in "street name" and plan to attend the meeting in person, please remember to bring a form of personal identification with you and proof of beneficial ownership.
On behalf of the Board of Directors, I thank you for your support and continued interest in our company.Joe's.
| Sincerely, | ||
| ||
| Samuel J. Furrow | ||
| CHAIRMAN OF THE BOARD OF DIRECTORS JOE'S JEANS INC. |
This notice of annual meeting and proxy statement and proxy are first being mailed on or about September 19, 2011, 2014 to our common stockholders.
JOE'S JEANS INC.
2340 South Eastern Avenue
Commerce, California 90040
(323) 837-3700
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, OCTOBER 26, 2011THURSDAY, MAY 8, 2014
| Time and Date | 9:00 a.m., local time on | |
Place | Sofitel Hotel Los Angeles, 8555 Beverly Boulevard, Los Angeles, California 90048 | |
Items of Business | (1) To elect the | |
(2) To approve an amendment to our Seventh Amended and Restated Certificate of Incorporation to increase the | ||
(3) To approve, under applicable NASDAQ Listing Rules, the issuance of common stock upon conversion of the Buyer Notes issued in connection with our acquisition of Hudson in excess of 19.99% of the common stock outstanding prior to such issuance; | ||
(4) To approve an amendment to the Amended and Restated 2004 Stock Incentive | ||
(5) To conduct | ||
(6) To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 30, | ||
(7) To transact such other business as may properly come before the annual meeting or any adjournment or postponement thereof. | ||
Record Date | You can vote if, at the close of business on | |
Proxy Voting | All stockholders are cordially invited to attend the Annual Meeting in person. However, to ensure your representation at the Annual Meeting, you are urged to vote promptly by signing and returning the enclosed proxy card or by telephone or Internet, or if you hold your shares in street name using the voting instruction |
The Board of Directors unanimously recommends that you vote to:
Pursuant to the rules promulgated by the Securities and Exchange Commission, or SEC, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on October 26, 2011.May 8, 2014. This proxy statement and our 20102013 Annual Report and the Hudson Financials (as defined below) are available free of charge athttp://www.joesjeans.com/2011proxy.2014proxy.
By Order of the Board of Directors,
| By Order of the Board of Directors, | ||
Samuel J. Furrow Chairman of the Board of Directors Commerce, California |
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i
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to the financial condition, results of operations, cash flows, financing plans, business strategies, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters. Statements in this document that are not historical facts are identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act and Section 27A of the Securities Act of 1933, as amended, or the Securities Act.
When we use the words "anticipate," "estimate," "project," "intend," "expect," "plan," "believe," "should," "likely" and similar expressions, we are making forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and any other documents we incorporate by reference in this proxy statement. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
These forward-looking statements, including statements relating to future business prospects, revenues, working capital, liquidity, capital needs and income, wherever they occur in this proxy statement, are estimates reflecting our best judgment. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and those discussed from time to time in our Securities and Exchange Commission, or SEC, reports, including our annual report on Form 10-K for the year ended November 30, 2010 filed with the SEC on February 10, 2011 and our subsequently filed quarterly reports on Form 10-Q. You should read and consider carefully the information about these and other risks set forth under the caption "Risk Factors" in such filings.
QUESTIONS AND ANSWERS
ABOUT THE PROXY MATERIALS
AND THE ANNUAL MEETING
Although we encourage you to read the proxy statement in its entirety, we include these "Questions and Answers" to provide background information and brief answers to several questions that you may have about the proxy materials in general.
Q: Why am I receiving these materials?PROPOSAL 1—ELECTION OF DIRECTORS
Q: What information is contained in this proxy statement?PROPOSAL 2—APPROVAL OF AMENDMENT TO THE SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE AMOUNT OF AUTHORIZED SHARES OF COMMON STOCK
Q: What proposals will be voted on at the annual meeting?PROPOSAL 3—APPROVAL, UNDER APPLICABLE NASDAQ LISTING RULES, THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF THE BUYER NOTES
A:
(1) To elect the seven director nominees to serve on the Board of Directors until the 2012 annual meeting of stockholders or until their respective successors are elected and qualified;
(2) To approve the adoption of the Amended and RestatedPROPOSAL 4—APPROVAL OF AMENDMENT TO THE AMENDED AND RESTATED 2004 Stock Incentive Plan, or the Restated Stock Plan;STOCK INCENTIVE PLAN
(3) To conduct a non-binding advisory vote on the compensation of our Named Executive Officers;
(4) To conduct a non-binding advisory vote on the frequency of holding future advisory votes on the compensation of our Named Executive Officers;
(5) To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November
(6) Such other business as may properly come before the annual meeting of stockholders or any adjournment or postponement thereof.
We will also consider any other business that properly comes before the annual meeting.
Q: How does the Board of Directors recommend that I vote?PROPOSAL 5—ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
PROPOSAL 6—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EXECUTIVE OFFICERS
EXECUTIVE OFFICER COMPENSATION
REPORT OF THE AUDIT COMMITTEE
RELATED PARTY TRANSACTIONS
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
OTHER BUSINESS TO BE TRANSACTED
INCORPORATION BY REFERENCE
APPENDIX A: AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN
i
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to the financial condition, results of operations, cash flows, financing plans, business strategies, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters. Statements in this document that are not historical facts are identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A of the Securities Act of 1933, as amended, or the Securities Act.
When we use the words "anticipate," "estimate," "project," "intend," "expect," "plan," "believe," "should," "likely" and similar expressions, we are making forward-looking statements. These forward-looking statements are found at various places throughout this proxy statement and any other documents we incorporate by reference in this proxy statement. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.
These forward-looking statements, including statements relating to future business prospects, revenues, working capital, liquidity, capital needs and income, wherever they occur in this proxy statement, are estimates reflecting our best judgment. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in this proxy statement and those discussed from time to time in our Securities and Exchange Commission, or SEC, reports, including our annual report on Form 10-K for the year ended November 30, 2013 filed with the SEC on February 13, 2014 and our subsequently filed quarterly reports on Form 10-Q. You should read and consider carefully the information about these and other risks set forth under the caption "Risk Factors" in such filings.
As used in this proxy statement, the terms "we," "us," "our," "Joe's," and "Joe's Jeans" refer to Joe's Jeans Inc. and our subsidiaries and affiliates, unless the context indicates otherwise.
QUESTIONS AND ANSWERS
ABOUT THE PROXY MATERIALS
AND THE ANNUAL MEETING
Although we encourage you to read the proxy statement in its entirety, we include these "Questions and Answers" to provide background information and brief answers to several questions that you may have about the proxy materials in general.
(1) To elect the eight director nominees named in this proxy statement to serve on the Board of Directors until the 2015 annual meeting of stockholders or until their respective successors are elected and qualified;
(2) To approve an amendment to our Seventh Amended and Restated Certificate of Incorporation to increase the amount of authorized shares of our common stock from 100 million to 120 million in order to permit the issuance of the common stock upon conversion of the convertible notes (the "Buyer Notes") issued in connection with our acquisition of Hudson Clothing Holdings, Inc., a Delaware corporation ("Hudson");
(3) To approve, under applicable NASDAQ Listing Rules, the issuance of common stock upon conversion of the Buyer Notes issued in connection with our acquisition of Hudson in excess of 19.99% of the common stock outstanding prior to such issuance;
(4) To approve an amendment to the Amended and Restated 2004 Stock Incentive Plan to increase the reservation of the total shares available for issuance to 11,825,000 shares of common stock;
(5) To conduct an advisory vote to approve named executive officer compensation;
(6) To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending November 30, 2014; and
(7) Such other business as may properly come before the annual meeting of stockholders or any adjournment or postponement thereof.
We are seeking stockholder approval of Proposal 2, because it is necessary to increase the amount of authorized common stock permitted to be issued under Seventh Amended and Restated Certificate of Incorporation in order to have a sufficient amount of common stock available to allow the issuance of common stock upon conversion of the Buyer Notes issued in connection with the Acquisition and to continue to have sufficient common stock available for other general corporate purposes on an ongoing basis, including the proposed increase in shares reserved under the Amended and Restated 2004 Stock Incentive Plan.
We are seeking stockholder approval of Proposal 3, because pursuant to the terms of the Buyer Notes, we have agreed to seek stockholder approval, under applicable NASDAQ Listing Rules, of the issuance of the common stock upon conversion of the Buyer Notes. Our common stock is listed on the NASDAQ Global Market and, as a result, we are subject to the NASDAQ's Listing Rules. The potential issuance of the shares of our common stock upon conversion of the Buyer Notes may implicate certain of the NASDAQ listing standards requiring prior stockholder approval in order to maintain our listing on the NASDAQ Global Market, including the following:
Assuming we elect to convert all of the Buyer Notes into shares of common stock, the issuance of common stock upon the conversion of certain Buyer Notes may be deemed to result in a group of
certain holders of Buyer Notes acquiring more than 20% of our shares of common stock. Accordingly, we are seeking the stockholders approval on any "change in control" as used in Rule 5635(b) in the event that the potential issuance of our common stock upon conversion of the Buyer Notes as proposed as in Proposal 3 would be deemed to be a "change in control" for purposes of Rule 5635(b). Stockholders should note that a "change of control" as described under Rule 5635(b) applies only with respect to the application of such rule, and does not constitute a "change of control" for purposes of Delaware law, our organizational documents, or any other purpose.
In order to comply with applicable NASDAQ Listing Rules, the Buyer Notes were issued with limited conversion rights. Until our stockholders approve Proposal 3, the Buyer Notes may not be converted into shares of our common stock in excess of an exchange cap, subject to adjustment for any stock splits, reverse stock splits or similar events affecting the common stock (the "Exchange Cap"), which as of the issuance date of the Buyer Notes was 13,628,159 shares of common stock.
Buyer Notes in an aggregate principal amount of approximately $22.9 million (face amount) were issued to Hudson's management stockholders (the "Management Notes"). The Management Notes are structurally and contractually subordinated to our senior debt and mature on March 31, 2019. The Management Notes accrue interest quarterly on the outstanding principal amount (i) from September 30, 2013 until the earlier to occur of the date of conversion of the notes or November 30, 2014 at a rate of 10% per annum, which will be payable 7.68% in cash and 2.32% in PIK Notes ("PIK Interest"), (ii) from December 1, 2014 until the earlier to occur of the date of conversion of the notes or September 30, 2016 at a rate of 10% per annum, which interest will payable in cash, and (iii) from October 1, 2016 until the earlier to occur of the date of conversion of the notes or the date such principal amount is paid in full at a rate of 10.928% per annum, which interest will be payable in cash. Payment of interest at the cash pay rate under clause (ii) or (iii), as applicable, for any payment date will be subject to satisfaction of the following conditions: (i) the issuance of the financial statements of our company and our consolidated subsidiaries for the fiscal quarter ending November 30, 2014 and for each fiscal quarter occurring thereafter, (ii) the "Leverage Ratio" (as defined in our term loan credit agreement) as of the most recently ended fiscal quarter is less than 3.21x to 1.00 and (iii) the "Excess Availability" (as defined in our term loan credit agreement) as of such date shall not be less than $18,000,000 (which Excess Availability may be comprised of up to $4,000,000 in "Unrestricted Cash" (as defined in our term loan credit agreement)). If such conditions are not satisfied as of any interest payment date, then the cash component of such interest payment will be payable 7.68% in cash and the remainder will be payable in PIK Interest. The Management Notes become convertible by each of the holders beginning September 30, 2015 and ending March 31, 2019, into shares of our common stock, cash, or a combination of cash and common stock, at our election.
The approximately $9.6 million (face amount) in aggregate principal amount of Buyer Notes issued to Fireman (the "Fireman Note") are structurally and contractually subordinated to Company's senior debt and mature on March 31, 2019. The Fireman Note accrues interest quarterly on the outstanding principal amount (i) from September 30, 2013 until the earlier to occur of the date of conversion of the notes or November 30, 2014 at a rate of 6.5% per annum, which will be payable 3.0% in cash and 3.5% in PIK Interest, (ii) from December 1, 2014 until the earlier to occur of the date of conversion of the notes or September 30, 2016 at a rate of 6.5% per annum, which
interest will payable in cash, and (iii) from October 1, 2016 until the earlier to occur of the date of conversion of the notes or the date such principal amount is paid in full at a rate of 7.0% per annum, which interest will be payable in cash. Payment of interest at the cash pay rate under clause (ii) or (iii), as applicable, for any payment date will be subject to satisfaction of the following conditions: (i) the issuance of the financial statements of our company and our consolidated subsidiaries for the fiscal quarter ending November 30, 2014 and for each fiscal quarter occurring thereafter, (ii) the "Leverage Ratio" (as defined in our term loan credit agreement) as of the most recently ended fiscal quarter is less than 3.00x to 1.00 and (iii) the "Excess Availability" (as defined in our term loan credit agreement) as of such date shall not be less than $18,000,000 (which Excess Availability may be comprised of up to $4,000,000 in "Unrestricted Cash" (as defined in our term loan credit agreement)). If such conditions are not satisfied as of any interest payment date, then the cash component of such interest payment will be payable 3.0% in cash and the remainder shall be payable in PIK Interest. The Firemen Note will become convertible by the holder October 1, 2014 and ending March 31, 2019, into shares of common stock, cash, or a combination of cash and common stock, at our election.
Subject to receipt of Joe's stockholders' approval of Proposal 3 pursuant to the NASDAQ Listing Rules, if Joe's elects to issue only shares of common stock upon conversion of the Buyer Notes, each of the Buyer Notes would be convertible, in whole but not in part, at a conversion price of $1.78 per share, subject to certain adjustments that are typical for convertible notes of this type, into approximately 18.2 million shares of common stock. The Fireman Note may be converted at its sole election and the Management Notes may be converted at either a majority of the holders' election or individually, depending on the holder. Prior to receipt of stockholder approval of Proposal 3, the conversion rights will be limited to approximately 13.6 million shares of common stock. If we elect to pay cash with respect to a conversion of the Buyer Notes, the amount of cash to be paid per share shall equal (a) the number of shares of common stock issuable upon such conversion multiplied by (b) the average of the closing prices for the common stock over the 20 trading day period immediately preceding the notice of conversion. We will have the right to prepay all or any portion of the principal amount of the Buyer Notes at any time by paying 103% of the principal amount of the portion of any Management Notes subject to prepayment or 100% of the principal amount of the portion of the Fireman Note subject to prepayment.
The Buyer Notes are expressly junior and subordinated in right of payment to all amounts due and owing upon any indebtedness outstanding under our revolving credit facility and term loan facility.
On September 30, 2013, we entered into a registration rights agreement with the holders of the Buyer Notes (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, at any time following the 20 month anniversary of the date of the Registration Rights Agreement (or, in the case of Fireman, the 10 month anniversary of the date of the Registration Rights Agreement), any holder or group of holders that, together with its or their affiliates (collectively, a "Demanding Stockholder") holds more than 20% of the shares issued or issuable pursuant to the Buyer Notes (the "Registrable Shares") will have the right to require us to prepare and file a registration statement on Form S-1 or S-3 or any similar form or successor to such forms under the Securities Act, or any other appropriate form under the Securities Act or the Exchange Act for the resale of all or part of its Registrable Shares. The Demanding Stockholders will collectively have the right to require up to two registration statements on Form S-1 and an unlimited number of registration statements on Form S-3. Additionally, the Registration Rights Agreement allows for piggy back registration rights, subject to certain limitations as described therein, which allows each holder of Registrable Shares to participate in the registration statement each time we or another holder of Registrable Shares proposes to conduct a sale of its common stock to the public.
The foregoing descriptions of the Buyer Notes, the Registration Rights Agreement and the Voting Letters, do not purport to be complete and are subject to, and qualified, in their entirety by, the full text of the form of the Buyer Notes, which was included as Exhibit 4.1 to our Current Report on Form 8-K filed on October 4, 2013, the Registration Rights Agreement, which was included as Exhibit 10.1 to our Current Report on Form 8-K filed on October 4, 2013, and the Form of Voting Letters, which was included as Exhibit 10.2 to our Current Report on Form 8-K filed on October 4, 2013, each of which is incorporated herein by reference.
If Proposals 2 and 3 are not approved, upon the conversion of the Buyer Notes, we may need to incur additional indebtedness to settle the conversion in cash or a combination of cash and stock since we can only issue shares up to the Exchange Cap. To the extent that Proposal 3 is not
approved, pursuant to the Buyer Notes, we are required to use our commercially reasonable efforts to explore raising additional indebtedness or other financing, refinancing of our senior debt, or obtaining waivers from the holders of our senior debt to allow Joe's to convert the Buyer Notes and fulfill in cash any conversion obligations not paid in shares of our common stock, subject to approval of the Board of Directors. Our ability to obtain financing on reasonable terms will depend on our future operating performance and financial results, and will be subject, in part, to factors beyond our control, including interest rates and general economic, financial and business conditions. Any additional required financing will increase our substantial indebtedness and likely result in further restrictions and consequences as described above. If we are unable to obtain the necessary financing we may default on the Buyer Notes which may have a material adverse effect on Joe's. For a further discussion of the impacts of failing to approve Proposals 2 and 3, see the disclosure included below under the headings "What if our stockholders do not approve Proposal 2?", "What if our stockholders approve Proposal 2, but do not approve Proposal 3?", "What if our stockholders do not approve Proposal 3?", and "What if our stockholders approve Proposal 3, but do not approve Proposal 2?" We encourage you to read the risk factor entitled "We incurred substantial indebtedness to finance the acquisition of Hudson and are subject to compliance with those financing agreements, which may decrease business flexibility and adversely affect financial results" contained in our Annual Report on Form 10-K for the year ended November 30, 2013, filed on February 13, 2014 (the "2013 Annual Report"), which is incorporated by reference into this proxy statement and a copy of which is being mailed with this proxy statement.
Q: What shares can I vote?
Q: What is the difference between holding shares as a common stockholder of record and as a beneficial owner?
Common Stockholder of Record
If your shares are registered directly in your name with our transfer agent, Continental Stock Transfer and Trust Company, you are considered with respect to those shares the common stockholder of record and these proxy materials are being sent directly to you by us. As the common stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the annual meeting. We have enclosed a proxy card for you to use.use and have provided instructions on how to vote by Internet or telephone.
Beneficial Owner
If your shares are held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares of our common stock held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered with respect to those shares the common stockholder of record. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote and are also invited to attend the annual meeting. However, since you are not the common stockholder of record, you may not vote these shares in person at the annual meeting unless you obtain a legal proxy from the broker, bank, or nominee that holds your shares giving you the right to vote the shares at the annual meeting. Your broker, bank or nominee has enclosed a voting instruction cardform for you to use in directing the broker or nominee regarding how to vote your shares. You may also be able to vote your shares by Internet or telephone as described below under "How can I vote my shares without attending the annual meeting?"
provide photo identification or comply with the other procedures outlined above upon request, you will not be admitted to the annual meeting.
beneficially in street name, please follow the instructions included in the proxy materials provided to you by your broker, bank or nominee or on your voting instruction card.
By Mail—Our common stockholders of record may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-paid, pre-addressed envelope. Our common stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction cardform provided by their broker, bank or nominee and mailing them in the accompanying pre-paid, pre-addressed envelope.
By Internet—Our common stockholders of record or those who hold shares beneficially in street name may vote by accessing the website specified on the proxy cards provided by us or the voting instruction cardsforms provided by their brokers, banks or nominees, respectively. Please check the voting instruction cardform for Internet voting availability, as applicable.
By Telephone—Our common stockholders of record or those who hold shares beneficially in street name may vote by phonetelephone by calling the number specified on the proxy cards provided by us or the voting instruction cardsforms provided by their brokers, banks or nominees, respectively. Please check the voting instruction cardform for telephone voting availability, as applicable.
Abstentions and broker non-votes arewill be counted as present for the purpose of determining the existence of a quorum at the annual meeting.
If you hold your shares through a broker, bank or other nominee and you do not provide your broker with specificreturn a voting instructions,instruction form, your broker may vote your shares on routine matters, but not on non-routine matters. As a result, your broker may not vote your shares without your instructionsreceipt of a voting instruction form with respect to Proposals 1 to 4 (election of directors, approval of the adoption of the Restated Stock Plan, advisory votes on compensation of Named Executive Officers and frequency of advisory votes on compensation of Named Executive Officers)through 5 because they areeach proposal is a non-routine matters,matter, but may vote your shares without your instructions with respect to Proposal 56 (ratification of independent registered public accounting firm) because this matter is considered routine.
Proposal 2 requires the affirmative "FOR" vote of a majority of our issued and outstanding common stock. Broker non-votes and abstentions will have the same effect as a vote against Proposal 2.
Proposals 3, 4, 5 and 6 require the affirmative "FOR" vote of a majority of those shares present in person or represented by proxy and entitled to vote on those proposals at the annual meeting. In tabulating the voting results for this proposal,Proposals 3, 4 and 5, shares that constitute broker non-votes are not considered entitled to vote on that proposal.such proposals. Thus, broker non-votes will not be counted in the vote total and will have no effect on the vote. Brokers mayhave the discretion to vote your shares
with respect to Proposal 56 because it is a routine matter. Abstentions have no effect on the election of directors (Proposal 1). For all other proposals, abstentions will have the same effect as votes against Proposals 3, 4, 5 and 6.
In addition, in order to satisfy NASDAQ's shareholder approval requirements for Proposals 3 and 4, a majority of the matter.
total votes cast on Proposals 3 and 4 must be voted in favor of such proposals. Under NASDAQ rules, abstentions are treated as votes cast, but broker non-votes are not. Therefore, abstentions will have the effect of a vote against Proposals 3 and 4, but broker non-votes will have no effect on the outcome of that proposal for purposes of the NASDAQ shareholder approval requirements.
additional compensation for such solicitation activities. To further assist in the solicitation process, we may hire a proxy solicitation firm such as Alliance Advisors LLC to solicit proxies by personal interviews, telephone, telegram or otherwise. If we hire them, we expect to pay to them an initial fee of approximately $6,500$7,000 and additional compensation on an as-needed basis for telephone solicitation and solicitations made by other means.
Pursuant to Rule 14a-8 under the Exchange Act, some stockholder proposals may be eligible for inclusion in our 20122015 proxy statement. Any such stockholder proposals must be submitted in writing to and received by the Corporate Secretary of Joe's at 2340 South Eastern Avenue, Commerce, California 90040 no later than May 22, 2012., 2014. The submission of a stockholder proposal does not guarantee that it will be included in our proxy statement.
With respect to any stockholder proposal not submitted pursuant to SEC Rule 14a-8 under the Exchange Act in connection with the 20122015 Annual Meeting of Stockholders, the proxy submitted or such meeting will confer discretionary authority to vote on such proposals unless we are notified
of such proposal no later than August 5, 2012, 2015 and the proponent complies with the other requirements set forth in SEC Rule 14a-4(c) under the Exchange Act.
Our common stockholders interested in submitting a proposal are advised to contact legal counsel with regard to the detailed requirements of applicable federal securities laws and the our bylaws, as applicable.
JOE'S JEANS INC.
2340 SOUTH EASTERN AVENUE
COMMERCE, CALIFORNIA 90040
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON WEDNESDAY, OCTOBER 26, 2011
THURSDAY,PROPOSAL 1
MAY 8, 2014
PROPOSAL 1
ELECTION OF DIRECTORS
Our bylaws provide that our Board of Directors will consist of not less than three directors, with the exact number of directors (subject to such minimum and any range of size established by our common stockholders) to be determined by resolution of our Board of Directors. Currently, the number of directors has been set at seven.eight. At our annual meeting, seveneight directors will be elected to serve until the 20122015 annual meeting of stockholders (which we expect to hold around late October of 2012) or until their respective successors are elected and qualified. Our Board of Directors' nominees for election are set forth below.
Q: What information is provided with respect to nominees to the Board of Directors?
Name | Age | Position | Year First Elected Director | ||||
|---|---|---|---|---|---|---|---|
Samuel J. (Sam) Furrow(1)(3) | 72 | Chairman of the Board of Directors | 1998 | ||||
Marc B. Crossman | 42 | Chief Executive Officer, President, and Director | 1999 | ||||
Joe Dahan | 46 | Creative Director and Director | 2007 | ||||
Joanne Calabrese(2)(3) | 55 | Director | 2012 | ||||
Kelly Hoffman(1)(2)(3) | 55 | Director | 2004 | ||||
Peter Kim | 43 | Director | (4) | ||||
Suhail R. Rizvi | 48 | Director | 2003 | ||||
Kent Savage(1)(2) | 52 | Director | 2003 | ||||
Name | Age | Position | Year First Elected Director | ||||||
|---|---|---|---|---|---|---|---|---|---|
Samuel J. (Sam) Furrow | 69 | Chairman of the Board of Directors | 1998 | ||||||
Marc B. Crossman | 39 | Chief Executive Officer, President, and Director | 1999 | ||||||
Joe Dahan | 43 | Creative Director and Director | 2007 | ||||||
Kelly Hoffman(2)(3) | 53 | Director | 2004 | ||||||
Thomas O'Riordan(1)(2)(3) | 55 | Director | 2006 | ||||||
Suhail R. Rizvi(1)(2)(3) | 45 | Director | 2003 | ||||||
Kent Savage(1)(3) | 49 | Director | 2003 | ||||||
Samuel J. (Sam) Furrow has served as Chairman of our Board of Directors since October 1998. Mr. Furrow became a member of our Board of Directors in April 1998 and served as our Chief Executive Officer from October 1998 until December 2000. Mr. Furrow also has been Chairman of the Board of Furrow Auction Company, a real estate and equipment sales company with its headquarters in Knoxville, Tennessee, since April 1968; Chairman of Furrow—Justice Machinery Corporation, a six-branch industrial and construction equipment dealer, since 1983; owner of Knoxville Motor Company—Mercedes Benz and Land Rover of Knoxville since December 1980 and July 1997, respectively. Mr. Furrow received his undergraduate and J.D. degrees from the University of Tennessee. Due to Mr. Furrow's extensive background as a business owner and operator, he brings substantial business experience and leadership to the Board of Directors, as well as offering advice and guidance to our management team.
Marc B. Crossman has served as our Chief Executive Officer since January 2006, our President since September 2004 and a member of our Board of Directors since January 1999. From March 2003 until August 2007, Mr. Crossman served as our Chief Financial Officer. From January 1999 until March 2003, Mr. Crossman served as a Vice President and Equity Analyst with J.P. Morgan Securities Inc. From September 1997 until January 1999, Mr. Crossman served as a Vice President and Equity Analyst with CIBC Oppenheimer Corporation. Mr. Crossman received his B.S. degree in Mathematics from Vanderbilt University. With Mr. Crossman's background as an equity analyst, and his tenure with the Company and a member of the Board of Directors since 1999, Mr. Crossman provides strategic guidance and experience for all aspects of our operations, including our capital and strategic matters.
Joe Dahan has served as the president and head designer for our Joe's Jeans subsidiary since its formation in February 2001, and as Creative Director and a member of our Board of Directors since October 2007. Mr. Dahan is responsible for the design, development and marketing of Joe's products. From 1996 until 2001, Mr. Dahan was the head designer for Azteca Production International, Inc., or Azteca, where he was responsible for the design, development and merchandising of product lines developed by Azteca, a manufacturer of branded and private label denim products. From 1989 until 1996, Mr. Dahan was engaged in the design and development of apparel products for a company of which he was an owner and operator. Mr. Dahan's significant experience in the apparel industry brings expertise related to the creative and strategic direction of our brand from season to season and our operational matters.
Joanne Calabrese has served as a member of our Board of Directors since March 2012. Since July 2012, Ms. Calabrese has served as Senior Vice President—Americas Region for Fossil, Inc., a publicly-traded global retailer specializing in the design, innovation and marketing of fashion lifestyle and accessory items, including, watches, handbags and clothing. From 2007 until July 2012, Ms. Calabrese served as founder and owner of jcr3, a retail consulting firm specializing in the merchandising, marketing, multi-channel retailing and strategic planning for global retail expansion. Prior to her consulting practice, from 2001 until 2006, Ms. Calabrese served as President of the Americas region for The Body Shop, a personal care retailer with 450 stores in the United States, Mexico, and Canada. Ms. Calabrese has also previously served in executive positions for other well-known retail companies, such as the Gap, Inc., Macy's Inc., and DFS Group, the operator of Duty Free Shops. Ms. Calabrese began her career as a buyer for shoes and fashion accessories at
Marshall Field's. Ms. Calabrese's retail and apparel industry knowledge enables her to offer advice and guidance to our management on our expansion and development of our retail stores.
Kelly Hoffman has served as a member of our Board of Directors since June 2004. Since April 2008,January 2013, Mr. Hoffman has served as the Chief Executive Officer and Director of Ring Energy, Inc. (OTCBB: RNGE), an oil and gas exploration, development and production company with operations in Texas and Kansas. From December 2011 until January 2013, Mr. Hoffman served as a consultant to numerous companies in the oil and gas industry. From April 2008 until December 2011, Mr. Hoffman served as President of Victory Park Resources, a privately held exploration and production company specializing in the acquisition of oil and gas producing properties in Oklahoma, Texas and New Mexico. From 1998 until September 2009, Mr. Hoffman served as Chairman of the Board of Directors and Chief Executive Officer of Varsity Media Group Inc., a technology and new media company. From 1991 until 1998, Mr. Hoffman owned AOCO Operating, a company that raised capital for the acquisition of property in Texas, Louisiana and New Mexico.Mexico whereby he purchased over 20,000 acres and drilled over 75 successful oil wells. Mr. Hoffman began his oil and gas career at Amoco Production Company in Texas in various positions. Mr. Hoffman attended Texas Tech University and majored in Business Administration. Mr. Hoffman's experience with starting up, raising capital and running various companies has provided us with practical knowledge and guidance on operations.
Thomas O'RiordanPeter Kim has served as a member of our Board of Directors and the chief executive officer of our wholly owned subsidiary, Hudson Clothing Holdings, Inc., or Hudson, since April 2006. Since January 2010,our acquisition of Hudson on September 30, 2013. Mr. O'RiordanKim is responsible for the operation of our Hudson subsidiary, a leading global designer and marketer of women's and men's premium branded denim apparel. Mr. Kim has served as Chief Operating Officer of CHEP USA, a global leader in pallet and container pooling services serving many ofbeen the world's largest companies. From August 2009 to January 2010 and from 1988 to 1995, Mr. O'Riordan served as President of
Tom O'Riordan & Associates, a sales and marketing company focused on the athletic footwear, apparel and sporting goods industries. Prior to that, from March 2007 to July 2009, Mr. O'Riordan served as Chief Executive Officer and member of American Sporting Goods Corporation, a privately held manufacturer and retailerthe Board of athletic footwear with such brands as And1, Avia, Ryka, Yukon, Triple 5 Soul, NSS and Nevados. From 2004 to 2007,Directors of Hudson since he founded it in 2002. Mr. O'Riordan acted in an executive consulting and advisory capacity to the senior management team of Fila Holding Company, a publicly traded manufacturer and retailer of branded footwear,Kim's apparel and accessories, and to other investment advisors and funds in the retail and consumer products sector. From 1999 to 2004, Mr. O'Riordan served in various executive management capacities with Fila Holding Company, ultimately serving as Chief Executive Officer from 2003 to 2004. From 1995 until 1998, Mr. O'Riordan served as Director of Operations of Adidas America, a publicly traded manufacturer and retailer of branded athletic footwear, apparel and accessories. Mr. O'Riordan began his career in sales for Brooks Shoe Company. Mr. O'Riordan received his B.S. degree in Marketing and Management from Rider University. Mr. O'Riordan's retail, apparel and footweardenim industry knowledge enables him to offer advice and guidance to our management as we grow our operations and open retail stores.in the denim industry.
Suhail R. Rizvi has served as a member of our Board of Directors since April 2003. Since 2004, Mr. Rizvi has served as founder, Chairman and Chief Investment Officer of Rizvi--Traverse Management LLC and other related funds. Mr. Rizvi has over twenty years of private equity investing experience for his own account and as a fiduciary for institutional investors through various entities or funds as founder, principal or manager. Mr. Rizvi also serves on the Board of Directors of Summit Entertainment LLC, International Creative Management, Inc., Ziegler Capital Management and Key Air, all privately held companies. Mr. Rizvi received his B.S. degree in Economics from the Wharton School of the University of Pennsylvania and sits on the Wharton Undergraduate Executive Board. Mr. Rizvi's experience as an executive and private equity investor brings strong financial and strategic expertise to our Board of Directors and management to assist in achieving stockholder value.
Kent Savage has served as a member of our Board of Directors since July 2003. Since 2000, Mr. Savage has served as the General Partner of Savage Interests LP, a limited partnership for investments. Since 2012, Mr. Savage has also served as co-founder and Chief Executive Officer of Icon.me, LLC. From June 2005 until 2010, Mr. Savage served as Founder and CEO of Famecast, Inc., a privately held interactive branded entertainment and contest management company, and also consulted with Famecast, Inc. on all aspects of the company's founding.company. From January 2004 until June 2005, Mr. Savage served as Chief Executive Officer for Digital Lifestyles Group, Inc. (DLFG.PK), a publicly traded manufacturer and distributor of personal computers.computers, and in connection, Mr. Savage created the hip-e™ computer. Between February 2003 and January 2004, Mr. Savage served in various consulting capacities to start-up companies. From September 2002 until February 2003, Mr. Savage served as co-founder, Chief Sales and Marketing Officer for TippingPoint Technologies (NASDAQ: TPTI), which was acquired by 3Com. From February 1999 until August 2001, Mr. Savage served as co-founder, CEO and President for Netpliance, Inc. From April 1998 until February 1999, Mr. Savage served as General Manager, Broadband for Cisco Systems Inc. Service Provider Line of Business. From July 1996 until April 1998, Mr. Savage served as Vice President, Sales and Marketing for NetSpeed, Inc. Mr. Savage
received his B.S. degree in Business from Oklahoma State University, attended University of Virginia's Executive Leadership Program, and received his M.B.A. degree from Southern Methodist University. Mr. Savage's extensive experience as an officer and director at other public companies brings valuable experience and insight regarding our financial and accounting matters to lead our Audit Committee.
Audit Committee. The Audit Committee is currently comprised of Messrs. Savage, Rizvi,Hoffman, Furrow and O'Riordan.Savage. Mr. Savage serves as Chairman of the Audit Committee. Mr. Tom O'Riordan was a member and Chairman of the Audit Committee until he retired from the Board of Directors in April 2013, at which time he was replaced on the Audit Committee by Mr. Hoffman. The Audit Committee met or acted through written consent a total of foursix times in fiscal 2010.2013.
The principal responsibility of the Audit Committee has been established to: (1) assistis to oversee our accounting and financial reporting processes and the audits of our financial statements. In that regard, the Audit Committee assists our Board of Directors in its oversight responsibilities regarding (a)monitoring (1) our accounting, auditing, and financial reporting processes generally, including the integrity of our financial statements, (b) our compliance with legal and regulatory requirements, (c) the independent accountant's qualifications, and independence and (d) the performance of the our internal audit function; (2) prepare the report required by the SEC for inclusion in the our annual proxy statement; (3) retain and terminate our independent accountant; (4) approveauditor (including pre-approval of audit and non-audit services to be performed by the independent accountant;auditor), (2) the integrity of our financial statements, (3) our systems of internal control regarding finance and (5) perform such other functions asaccounting and (4) our Board of Directors may from time to time assign to the Audit Committee.compliance with legal and regulatory requirements. The Audit Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003 and filed with our revised proxy statement for our last annual meeting on April 29, 2004.November 21, 2013. Our Audit Committee is also primarily responsible for overseeingreviewing with management our financial risksmajor risk exposures and management's approach to monitorour risk assessment and control exposure related to financial risks.risk management programs. Currently, all Audit Committee members are "independent" under NASDAQ listing standards and as such term is defined in the rules and regulations of the SEC, and Mr. RizviSavage has also been designated to be an "audit committee financial expert" as such term
is defined in the rules and regulations of the SEC. Until his resignation in April 2013, Mr. O'Riordan had been designated to be an "audit committee financial expert" as such term is defined in the rules and regulations of the SEC. A copy of the Audit Committee charter, as amended from time to time, can be found on our website atwww.joesjeans.com under our Investor Relations heading.
Compensation and Stock Option Committee. Currently, the Compensation and Stock Option Committee, or the Compensation Committee, is comprised of Messrs. O'Riordan, Hoffman and Rizvi.Savage and Ms. Calabrese. Mr. O'RiordanHoffman serves as Chairman of the Compensation Committee. The Compensation and Stock Option Committee met or acted through written consent a total of sixtwo times in fiscal 2010.2013.
The principal responsibilities of the Compensation Committee are to (1) assistdischarging our Board of Directors in ensuring that a proper system of long-term and short-term compensation is in place to provide performance-oriented incentives to management, and that compensation plans are appropriate and competitive and properly reflect the objectives and performance of management and the company; (2) discharge our Board of Director'sDirectors' responsibilities relating to the compensation of
our executive officers; (3) evaluate our Chief Executive Officer and set his remuneration package; (4) prepareother executive officers, (2) administering our equity-based compensation plans and (3) reviewing the disclosures in our Compensation Discussion and Analysis and producing an annual compensation committee report on executive compensation for inclusion in our annual proxy statement; (5) make recommendations to our Board of Directors with respect to incentive-compensation plans and equity-based plans; and (6) perform such other functionsstatements, as our Board of Directors may from time to time assign.applicable. The Compensation Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003.November 21, 2013. Currently, all Compensation Committee members are "independent" under NASDAQ listing standards. A copy of the Compensation Committee charter, as amended from time to time, can be found on our website atwww.joesjeans.com under our Investor Relations heading. The Compensation Committee also has the ability to delegate its duties as necessary and appropriate, including the ability to delegate certain of its responsibilities under the Restated Stock Plan.our stock incentive plans.
Nominating and Governance Committee. The Nominating and Governance Committee is currently comprised of Messrs. Rizvi,Furrow and Hoffman O'Riordan, and Savage.Ms. Calabrese. Mr. RizviFurrow serves as Chairman of the Nominating and Governance Committee. Mr. O'Riordan was a member of the Nominating and Governance Committee until he retired from the Board of Directors in April 2013. The Nominating and Governance Committee met a total of one time in fiscal 20102013 and met prior to the filing of this proxy statement to propose the above slate of nominees for election to our Board of Directors by our common stockholders for this annual meeting.
The principal responsibilities of the Nominating and Governance Committee are to (a) assist(1) assisting our Board of Directors in determining the desired experience, mixidentifying individuals qualified to serve as members of skills and other qualities to assure appropriateour Board of Directors, composition, taking into account the current members(2) developing and the specific needs of the company and the Board of Directors; (b) identify highly qualified individuals meeting those criteria to serve on our Board of Directors; (c) proposerecommending to our Board of Directors a slateset of nominees for election by our common stockholders atcorporate governance guidelines, and (3) overseeing the annual meeting of stockholders and prospective director candidates in the event of the resignation, death, removal or retirement of directors or a change in our Board of Directors composition requirements; (d) develop plans regarding the size and compositionevaluation of our Board of Directors and its committees; (e)management. In that regard, the Nominating and Governance Committee also has primary responsibility to recommend to our Board of Directors the director nominees for election by the stockholders at meetings of stockholders and for filling any vacancies and newly created directorships, to periodically review management succession plans; (f) reviewand make recommendations regarding the Corporate Governance Guidelinescomposition and size of our Board of Directors at least annually and monitorcommittees, to review and make recommendations to our Board of Directors with respect to the corporate governance principles applicabledirector compensation, and to the company;oversee director orientation and (g) perform such other functions as the Board of Directors may from time to time assign to the Nominating and Governance Committee.continuing education programs.
The Nominating and Governance Committee has a charter that details its duties and responsibilities, which was adopted by our Board of Directors on May 22, 2003.November 21, 2013. Currently, all Nominating and Governance Committee members are "independent" under NASDAQ listing standards. There is no specific procedure outlined in the charter for the Nominating and Governance Committee to consider nominees to our Board of Directors that are recommended by our common stockholders, but such nominees will be considered in accordance with the principal responsibilities of the Nominating and Governance Committee, our bylaws, our Corporate Governance Guidelines and all applicable rules and regulations relating to such nominations by our common stockholders. Any recommendations by stockholders for nominations to our Board of
Directors would be evaluated in a manner similar to how the Nominating and Governance Committee considers all directors. Please see our "Questions and Answers" beginning on page two for deadlines to propose actions for consideration at next year's annual meeting of stockholders or to nominate individuals to serve as directors. The Nominating and Governance Committee has the responsibility for developing criteria for the selection of new directors and nominees for vacancies. The membersIn evaluating the suitability of candidates, the Nominating and Governance Committee may take into account many factors, including the nominee's judgment, experience, independence, character, business acumen and such other factors as the Nominating and Governance Committee concludes are pertinent in light of the current needs of our Board of Directors, including an incumbent's past performance, attendance at meetings and participation in and contributions to the activities of our Board of Directors. We have no formal policy on diversity; however, our Board of Directors believes that its membership should reflect a diversity of experience, gender, race, ethnicity and age. To date, no more specific criteria has been developed other than that set forth in the charter of the Nominating and Governance Committee have the discretion to choose candidates that have the desired experience, mix of skills and other qualities to assure appropriate composition while taking into account the current members and the specific needs of our company and our Board of Directors as well as diversity. However, we have no formal policy on diversity. To date, no more
specific criteria has been developed than that set forth in the charter.Corporate Governance Guidelines. In addition, in July 2011, we engaged an outside consulting firm to assist us with evaluating potential members for our Board of Directors. In connection with this assistance, the outside consulting firm will work with us to prepareon March 19, 2012, Joanne Calabrese was elected as a board position profile, develop a search strategy, identify candidates for recruitment, conduct preliminary interviewsnew member of potential candidates and check references.our Board of Directors. A copy of the Nominating and Governance Committee charter, as amended from time to time, can be found on our website atwww.joesjeans.com under our Investor Relations heading.
In fiscal 2010, all directors attended our annual meeting in person. Consistent with its past practices, on October 26, 2010,November 2012, the Compensation Committee of the Board of Directors approved grants of restricted stock units, or RSUs with a fair market value of $70,000 to each non-employee director, for which the non-employee director had the option to elect all RSUs or1/ 1/3 of the fair market value in cash and the remaining2/2/3 in RSUs or the entire award in ordercash to pay certain personal income tax obligations that each non-employee director would incur as a result of the grant.be paid quarterly. The following non-employee directors each received 39,54878,652 RSUs: Sam Furrow and Suhail Rizvi. The following non-employee directors each received 26,36652,436 RSUs and $23,333$23,332 in cash: Kelly Hoffman and Kent Savage and Joanne Calabrese. Tom O'Riordan and Kelly Hoffman each received $70,000 as a cash retainer. The RSUs vestvested and the cash amounts arewere paid on a quarterly basis over the course of the 12 months.months subsequent to the grant. This amount was determined based upon the peer group analysis and was in the 50th percentile of peer group companies.prior year's payment.
| Board of Director Fees | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Issued for 2012 | |||||||||
Name | Fees earned or paid in cash | Stock Awards(1) | Total | |||||||
Sam Furrow | $ | — | $ | 70,000 | $ | 70,000 | ||||
Suhail Rizvi | — | 70,000 | 70,000 | |||||||
Kent Savage | 23,332 | 46,668 | 70,000 | |||||||
Joanne Calabrese | 23,332 | 46,668 | 70,000 | |||||||
Tom O'Riordan | 87,500 | (2) | — | 87,500 | ||||||
Kelly Hoffman | 70,000 | — | 70,000 | |||||||
| | | | | | | | | | | |
| $ | 204,164 | $ | 233,336 | $ | 437,500 | |||||
| | | | | | | | | | | |
| | | | | | | | | | | |
Name | Fees earned or paid in cash | Stock Awards(1) | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Sam Furrow | $ | — | $ | 70,000 | $ | 70,000 | ||||
Kent Savage | 23,333 | 46,667 | 70,000 | |||||||
Tom O'Riordan | 70,000 | — | 70,000 | |||||||
Suhail Rizvi | — | 70,000 | 70,000 | |||||||
Kelly Hoffman | 23,333 | 46,667 | 70,000 | |||||||
| $ | 116,666 | $ | 233,334 | $ | 350,000 | |||||
reporting purposes in accordance with ASC 718. The RSUs vestvested on a quarterly basis over a 12 month period with the first tranche vestedvesting on January 26, 2011.February 14, 2013. For a discussion on the assumptions made regarding the valuation of the stock awards, please see "Note 7—Stockholders' Equity—Stock Incentive Plans" in our Notes to Consolidated Financial Statements.Statements in our Annual Report on Form 10-K for the year ended November 30, 2012.
Members of our Board of Directors who are employees receive no additional compensation for service as members of our Board of Directors. Members of our Board of Directors who also serve on one or more committees of our Board of Directors do not receive any additional compensation for such service.
To date, there have been no waivers under our Code of Business Conduct and Ethics. We intend to disclose any amendments to our Code of Business Conduct and Ethics and any waiver granted from a provision of such Code on a Current Report on Form 8-K filed with the SEC within four business days following such amendment or waiver or on our website atwww.joesjeans.com within the same time frame.frame that would otherwise be required by a Form 8-K. The information contained or connected to our website is not incorporated by reference into this proxy statement and should not be considered a part of this or any other report that we file or furnish to the SEC.
review and discuss these matters. In addition, at the invitation of the Audit Committee, other members of the Board of Directors and management team are also present at these meetings to participate in the discussion on our most significant risks and exposure to risks and the evaluation of these matters to ensure consensus and mutual understanding between our Board of Directors and management. Finally, each of our committees considers their own particular set of risks associated with its responsibilities.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE SEVENTH AMENDED AND RESTATED 2004 CERTIFICATE OF
INCORPORATION TO INCREASE THE AMOUNT OF AUTHORIZED SHARES OF COMMON
STOCK INCENTIVE PLAN
Our Board of Directors has approved and recommends the adoption of an amendment to our Seventh Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock available for issuance by 20 million from 100 million to 120 million. The increase in the number of authorized shares of common stock available for issuance is necessary to provide us with a sufficient reserve of shares of common stock to permit the issuance of common stock upon conversion of the Buyer Notes issued in connection with our acquisition of Hudson and to continue to have common stock available for other general corporate purposes on an ongoing basis, including the proposed increase in shares reserved under the Amended and Restated 2004 Stock Incentive Plan. We are asking our common stockholders to consider and approve the amendment to our Seventh Amended and Restated Certificate of Incorporation. Currently, we have 100 million shares of our common stock and 5 million shares of our preferred stock authorized for issuance. In the event of approval of this amendment, our authorized shares of common stock would be increased by 20 million to 120 million. Our authorized shares of preferred stock will remain the same. If this proposal is approved, the additional shares would be part of the existing class of common stock and if and when issued, would have the same rights and privileges as the shares of common stock presently issued and outstanding. As of February 24, 2014, we had 69,059,632 shares of common stock issued and 68,647,337 shares of common stock outstanding.
Until our stockholders approve Proposal 3, the Buyer Notes may not be converted into shares of our common stock in excess of the Exchange Cap, which as of the issuance date of the Buyer Notes was 13,628,159 shares of common stock. Upon the approval of Proposal 3, each of the Buyer Notes, including the PIK Notes, would be convertible, subject to certain conditions, including our election to convert such notes into common stock or cash, in whole but not in part, at a conversion price of $1.78 per share, subject to certain adjustments that are typical for convertible notes of this type, into approximately 18.4 million shares of common stock. In addition, as described above in "Questions and Answers about the Proxy Material and the Annual Meeting" under the question "What are the terms of the Buyer Notes?", we will issue additional Buyer Notes as PIK Interest from time to time, which will increase the number of shares issuable upon conversion of the Buyer Notes.
Below is a table that calculates the current shares available for future issuance based on current uses of the authorized shares of the common stock as of February 24, 2014.
| Shares of common stock (in thousands) | ||||
|---|---|---|---|---|
Authorized shares of common stock | 100,000 | |||
Issued and outstanding shares of common stock | (69,171 | ) | ||
Reserved shares of common stock: | ||||
Stock options | (775 | ) | ||
RSU | (1,840 | ) | ||
Future issuances under the Amended and Restated 2004 Stock Incentive Plan | (3,545 | ) | ||
Shares issuable upon conversion of the Buyer Notes (subject to Exchange Cap) | (13,628 | ) | ||
| | | | | |
| | | | | |
Shares available for future issuances | 11,041 | |||
Below is a table that calculates the current shares available for future issuance based on current uses of the authorized shares of the common stock as of February 24, 2014, assuming that Proposals 2, 3 and 4 are approved.
| | Shares of common stock in thousands | |||
|---|---|---|---|---|
Authorized shares of common stock | 120,000 | |||
Issued and outstanding shares of common stock | (69,171 | ) | ||
Reserved shares of common stock: | ||||
Stock options | (775 | ) | ||
RSU | (1,840 | ) | ||
Future issuances under the Amended and Restated 2004 Stock Incentive Plan | (8,545 | ) | ||
Shares issuable upon conversion of the Buyer Notes | (18,350 | ) | ||
| | | | | |
| | | | | |
Shares available for future issuances | 21,319 | (1) | ||
Our Board of Directors has concluded that increasing the number of authorized shares of common stock available for issuance by 20 million is necessary and in the best interest of Joe's and its stockholders and will sufficiently offset the shares of common stock issuable upon conversion of the Buyer Notes (including future issuances of PIK Notes) and will provide us with flexibility to continue to issue additional shares of common stock in the ordinary course of business for general corporate purposes that may be identified from time to time, such as financings, acquisitions, strategic business relationships, stock dividends, including stock splits in the form of stock dividends, or issuances under our benefit plans. Except as otherwise disclosed in this proxy statement, Joe's has no present commitment, plan or intent to issue any of the additional shares of common stock provided for in this Proposal 2.
percentage of ownership interest held by our existing stockholders. Also, the addition of a substantial number of shares of our common stock into the market or the registration of any other securities may significantly and negatively affect the prevailing market price for our common stock.
Although we have not proposed the increase in the number of authorized shares of common stock with the intent of using the additional shares to prevent or discourage any actual or threatened takeover, under certain circumstances, such shares could have an anti-takeover effect. The additional shares could be issued to dilute the stock ownership or voting rights of persons seeking to obtain control of us or could be issued to persons allied with the Board of Directors or management and thereby have the effect of making it more difficult to remove directors or members of management by diluting the stock ownership or voting rights of persons seeking to effect such a removal. Accordingly, if Proposal 2 is approved, the additional shares of authorized common stock may render more difficult or discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of common stock, or the replacement or removal of the Board of Directors or management.
In addition to the proposed amendment to our Seventh Amended and Restated Certificate of Incorporation, existing provisions of our governing documents, including, among other provisions, the ability of the Board of Directors to designate the terms of and issue preferred stock without stockholder approval, and applicable provisions of Delaware law may also have anti-takeover effects, making it more difficult for or preventing a third-party from acquiring control of us or changing our Board of Directors and management. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control of us or in our management.
"FOURTH: (a) The total number of shares of capital stock that the Corporation shall be authorized to issue is 125,000,000 divided into two classes as follows: (i) one hundred twenty million (120,000,000) shares of common stock having a par value of $.10 per share ("Common Stock"), and (ii) five million (5,000,000) shares of serial preferred stock in series having a par value of $.10 per share (the "Preferred Stock")."
Proposal 3?" In the event Proposal 2 is approved but Proposal 3 is not approved, we agreed to use our reasonable best efforts to obtain stockholder approval of the proposal at each stockholders meeting thereafter until so obtained.
PROPOSAL 3
APPROVAL, UNDER APPLICABLE NASDAQ LISTING RULES, THE ISSUANCE OF
COMMON STOCK UPON CONVERSION OF THE BUYER NOTES
Assuming we elect to convert all of the Buyer Notes into shares of common stock, the issuance of common stock upon the conversion of certain Buyer Notes may be deemed to result in a group of certain holders of Buyer Notes acquiring more than 20% of our shares of common stock. Accordingly, we are seeking the stockholders approval on any "change in control" as used in Rule 5635(b) in the event that the potential issuance of our common stock upon conversion of the Buyer Notes as proposed as in Proposal 3 would be deemed to be a "change in control" for purposes of Rule 5635(b). Stockholders should note that a "change of control" as described under Rule 5635(b) applies only with respect to the application of such rule, and does not constitute a "change of control" for purposes of Delaware law, our organizational documents, or any other purpose.
In order to comply with applicable NASDAQ Listing Rules, the Buyer Notes were issued with limited conversion rights. Until our stockholders approve Proposal 3, the Buyer Notes may not be converted into shares of our common stock in excess of the Exchange Cap, which as of the issuance date of the Buyer Notes was 13,628,159 shares of common stock.
Pursuant to the terms of the Buyer Notes, we have agreed to seek stockholder approval, under applicable NASDAQ Listing Rules, of the issuance of the common stock upon conversion of the Buyer Notes.
We seek your approval of Proposal 3 in order to comply with the applicable NASDAQ Listing Rules and to satisfy our obligations under the Buyer Notes.
A description of the Buyer Notes is included above in "Questions and Answers about the Proxy Materials and the Annual Meeting" under the question "What are the terms of the Buyer Notes?" Information on the availability of historical financial statements of Hudson and pro forma condensed combined financial statements of our Company together with Hudson as of and for the nine months ended August 31, 2013 and for the fiscal year ended November 30, 2012 is included
above under the heading "Where can I find more financial and other information regarding the Acquisition?"
The actual number of shares of common stock that will be issuable upon conversion of a Buyer Notes will not be known until such conversion occurs and may be in excess of the Exchange Cap. As described more fully above in "Questions and Answers about the Proxy Materials and the Annual Meeting" under the question "What are the terms of the Buyer Notes?", (i) interest on the Buyer Notes is payable under certain circumstances in the form of additional Buyer Notes, referred to as PIK Notes, that will also be convertible into shares common stock and (ii) the conversion price of the Buyer Notes, which is currently $1.78 per share, is subject to certain adjustments that are typical for convertible notes of this type and such adjustments may increase the number of shares of common stock issuable upon conversion of the Buyer Notes. Any additional PIK Notes issued from time to time or decrease in the conversion price of the Buyer Notes, would increase the number of shares of common stock due upon conversion of Buyer Notes.
Mr. Kim's notes would be convertible, subject to certain conditions, including our election to convert his notes into common stock rather than cash, into approximately 8.0 million shares of common stock. Mr. Kim is also a party to the Registration Rights Agreement, described above in "Questions and Answers about the Proxy Materials and the Annual Meeting" under the question "What are the terms of the Buyer Notes?"
In the event Proposal 3 is not approved by our stockholders at the annual meeting, we agreed to use our reasonable best efforts to obtain stockholder approval of the proposal at each stockholders meeting thereafter until so obtained.
On April 7, 2004, our Board of Directors adopted the 2004 Stock Incentive Plan, or the 2004 Stock Plan. Our common stockholders approved the 2004 Stock Incentive Plan at the annual meeting of stockholders on June 3, 2004 and approved an amendment to our 2004 Stock Incentive Plan on each of June 9, 2005, October 11, 2007 and October 8, 2009 to increase in the reservation of the total shares available for issuance to 12,265,172 shares of common stock. We now wish to amendOn September 7, 2011, our Board of Directors adopted the Amended and restate ourRestated 2004 Stock Incentive Plan to update it(the "Restated Stock Plan"), which was updated with respect to certain provisions and changes in the tax code since its original adoption.adoption, as well as to set the total shares available for issuance under the plan to 6,825,000. Our Board of Directors adoptedcommon stockholders approved the Restated Stock Plan at the annual meeting of stockholders on September 7,October 26, 2011. We now wish to further amend the Restated Stock Plan to increase the total shares of common stock available for issuance under the plan by 5,000,000 shares of common stock to 11,825,000 (the "Proposed Amendment").
Our Restated Stock Plan provides for an award of options, whether nonqualified or incentive, restricted common stock, restricted common stock units, or RSUs, performance awards (which may be in the form of performance shares, performance share units or cash performance awards), purchases, share awards, stock appreciation rights or other awards based on the value of our common stock. The Restated Stock Plan permits the Compensation and Stock Option Committee to grant performance compensation awards, contingent upon pre-established performance goals to our executives. In order to qualify for deductibility under Section 162(m) of the Internal Revenue Code, or the Code, the Restated Stock Plan, including, without limitation, the performance goals for determining performance awards set forth in the Restated Stock Plan must beplan, were approved by our common stockholders.stockholders at the annual meeting on October 26, 2011. If the Restated Stock PlanProposed Amendment is not approved by our common stockholders no performanceat the upcoming annual meeting of stockholders on May 8, 2014, we can continue to make awards granted under the Restated Stock Plan, which will continue to be paid whether or noteffective according to its terms (as in effect without the performance awards would otherwise be earned.Proposed Amendment).
approval requirement, a majority of the total votes cast on the proposal must be voted in favor of the proposal.
Q: How does the Board of Directors recommend I vote?
Other than grants of restricted common stock or RSUs to be made to Marc Crossman in connection with his employment agreement for his service on an annual basis in a currently indeterminable amount equal to his base salary of $429,300, weWe currently have no other specific plans, proposals or arrangements to issue any of the newly authorized shares under the Restated Stock Plan.Plan or any of the additional shares that would become available if the Proposed Amendment is approved by our stockholders.
General. The purpose of the Restated Stock Plan is to enhance our ability to attract and retain officers, directors, employees and consultants of outstanding ability and to provide selected
officers, employees, directors and consultants with an interest in us parallel to that of our stockholders. The Restated Stock Plan provides for the award of options, whether nonqualified or incentive, restricted common stock, RSUs, performance shares, performance share units, purchases, share awards, stock appreciation rights and other awards based on the value of our common stock to our officers, employees, directors and consultants, as well as those officers, employees, directors and consultants of our subsidiaries or affiliates.
Effective Date. The Restated Stock Plan will become effective on the date that it is approved by our stockholders in accordance with this Proposal 2.4.
Number of Shares. Subject to adjustment for certain corporate events, the total number of shares of common stock which are available for the grant of awards under the Restated Stock Plan cannot exceed 6,825,000 shares of common stock;stock (11,825,000 shares if the Proposed Amendment is approved by our stockholders); provided, that, for purposes of this limitation, any common stock subject to an option which is canceled or expires without exercise will again become available for award under the Restated Stock Plan. Upon forfeiture of awards in accordance with the provisions of the Restated Stock Plan and the terms and conditions of the award, such shares will again be available for subsequent awards under the Restated Stock Plan. Subject to adjustment, no employee will be granted, during any one (1) year period, options to purchase more than 1,250,000 shares of common stock, and the number of shares of common stock subject to any awards other than options or stock appreciation rights will not exceed 1,250,000 shares of common stock. All shares of common stock reserved for issuance under the Restated Stock Plan may be used for grants of "incentive stock options," as described below, Common stock available for issue or distribution under the Restated Stock Plan will be authorized and unissued shares or shares reacquired by us in any manner.
Administration. The Compensation and Stock Option Committee of our Board of Directors of Directors will administeradministers the Restated Stock Plan. The Compensation and Stock Option Committee is currently comprised of Messrs. O'Riordan, Hoffman and Rizvi.Savage and Ms. Calabrese. All members of the Compensation and Stock Option Committee are non-employee directors within the meaning of Rule 16b-3 as promulgated
under Section 16 of the Exchange Act, as amended, are also outside directors within the meaning of Section 162(m) of the Code are "independent directors" within the meaning of Rule 5605(a)(2) of the Nasdaq Stock Market Rules .Rules. The Compensation and Stock Option Committee willhas the power to (i) approve the selection of participants, (ii) determine the type of stock awards to be made to participants, (iii) determine the number of shares of common stock subject to awards, (iv) determine the terms and conditions of any awards granted there under (including, but not limited to, any restriction and forfeiture conditions on such awards) and (v) have the authority to interpret the Restated Stock Plan, to establish, amend, and rescind any rules and regulations relating to the Restated Stock 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 Restated Stock Plan.
Eligibility. Employees, officers, directors and consultants of us and our subsidiaries or affiliates selected by the Compensation and Stock Option Committee are eligible to receive grants of awards under the Restated Stock Plan. As of September 7, 2011,February 24, 2014, there were approximately 190566 employees, threefour executive officers and five directors eligible to participate in the Restated Stock Plan.
Awards. Awards under the Restated Stock Plan may consist of options, restricted common stock, RSUs, performance awards (which may be in the form of performance shares, performance share units or cash performance awards), stock purchases, share awards, stock appreciation rights or other share awards based on the value of our common stock.
(1) Options. Both "nonqualified stock options", or Nonqualified Stock Options, and "incentive stock options", or ISOs, may be granted under the Restated Stock Plan, which we will
collectively refer to as Options. The terms of any such Option will be set forth in an option agreement and will be consistent with the following:
Exercise Price.The exercise price per share of the shares of our common stock to be purchased pursuant to any Option will be fixed by the Compensation and Stock Option Committee at the time such Option is granted. In no event will the exercise price for ISOs be less than the fair market value of a share on the day on which the ISO is granted; provided, however, that in the case of ISOs granted to 10% shareholders, the price per share shall not be less than 110% of the fair market value of a share on the day on which the ISO is granted. The Compensation and Stock Option Committee may also reduce the Option price of any outstanding Option either through a direct amendment to such Option or through a cancellation of such Option and immediate grant of a new Option with a lower Option price or in any other manner it deems appropriate.
Option Term.Subject to termination, the duration of each Option will be determined by the Compensation and Stock Option Committee, but may not exceed 10 years from the date of grant; provided, however, that in the case of ISOs granted to 10% shareholders, the term of such Option will not exceed 5 years from the date of grant. In the event of a participant's death (other than ISOs) Options that would otherwise remain exercisable following such death, will remain exercisable for one year following such death irrespective of the terms of the Option.
Vesting.An Option will vest and become exercisable at a rate determined by the Compensation and Stock Option Committee on the date of grant.
(2) Restricted Awards. The Restated Stock Plan permits the Compensation and Stock Option Committee to award restricted common stock under the Restated Stock Plan to eligible participants. The Compensation and Stock Option Committee may also award restricted common stock in the form of RSUs having a value equal to an identical number of shares of common stock. Payment of RSUs will be made in common stock or in cash or in a combination thereof (based upon the Fair Market Value (as defined in the Restated Stock Plan) of the common stock on the day the restricted period expires).
(3) Performance Compensation Awards. The Compensation and Stock Option Committee has the authority, at the time of grant of any award under the Restated Stock Plan (other than Options and stock appreciation rights granted with an exercise price or grant price, as the case may be, equal to or greater than the fair market value per share of common stock on the date of grant), to designate such award as a performance compensation award in order to qualify the award as "performance-based compensation" under Section 162(m) of the Code. In addition, the Committee and Stock Option Committee has the authority to make an award of a cash bonus to any participant and designate the ward as a performance compensation award in order to qualify such Award as "performance-based compensation" under Section 162(m). The Compensation and Stock Option Committee will, in its sole discretion, designate within the first 90 days of a performance period (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) which participants will be eligible to receive performance compensation awards in respect of the performance period. However, designation of a participant eligible to receive an award for a performance period will not in any manner entitle the participant to receive payment in respect of any performance compensation award for the performance period. The determination as to whether or not the participant becomes entitled to payment in respect of any performance compensation award will be decided solely in accordance with the applicable provisions of the Restated Stock Plan. Performance compensation awards under the Restated Stock Plan will be subject to achievement of performance goals. Performance goals may be expressed in terms of one or more of the following business criteria: revenue, earnings before interest, taxes, depreciation
and amortization, or EBITDA, funds from operations, funds from operations per share, operating income, pre or after tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, share price performance, improvements in our attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after tax).
Unless otherwise provided in the applicable award agreement, a participant must be employed on the last day of a performance period to be eligible for payment in respect of a performance compensation award for that performance period. A participant will be eligible to receive payment in respect of a performance compensation award only to the extent that: (a) the performance goals for such period are achieved; and (b) the performance formula as applied against such performance goals determines that all or some portion of such participant's performance compensation award has been earned for the performance period. Following the completion of a performance period, the Compensation and Stock Option Committee will review and certify in writing whether, and to what extent, the performance goals for the performance period have been achieved and, if so, calculate and certify in writing that amount of the performance compensation awards earned for the period based upon the performance formula. The Compensation and Stock Option Committee will then determine the actual size of each participant's performance compensation award for the performance period and, in so doing, may generally apply negative discretion to eliminate or reduce the size of a performance compensation award, if and when it deems appropriate. However, the Compensation and Stock Option Committee will not have the discretion to (a) grant or provide payment in respect of performance compensation awards for a performance period if the performance goals for that performance period have not been attained; or (b) increase a performance compensation award above the maximum amount payable under the applicable provisions of the Restated Stock Plan. Performance compensation awards granted for a performance period will be paid to participants as soon as administratively practicable following completion of the certifications by the Compensation and Stock Option Committee.
The maximum performance compensation award payable to any one participant under the Restated Stock Plan for a performance period is 6,825,000 shares of common stock (11,825,000 shares if the Proposed Amendment is approved by our stockholders) or, in the event the performance compensation award is paid in cash, the equivalent cash value thereof on the first or last day of the performance period to which the award relates, as determined by the Compensation and Stock Option
Committee. The maximum amount that can be paid in any calendar year to any participant pursuant to a performance-based cash bonus award is $4,000,000. Furthermore, any performance compensation award that has been deferred will not (between the date as of which the award is deferred and the payment date) increase (A) with respect to performance compensation award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable rate of interest set by the Compensation and Stock Option Committee or (B) with respect to a performance compensation award that is payable in shares of common stock, by an amount greater than the appreciation of a share of common stock from the date the award is deferred to the payment date.
(4) Share Purchases. The Compensation and Stock Option Committee may authorize eligible individuals to purchase common stock at price equal to, below or above the fair market value of the common stock at the time of grant.
(5) Share Awards. Subject to such performance and employment conditions as the Compensation and Stock Option Committee may determine, awards of common stock or awards based on the value of the common stock may be granted either alone or in addition to other awards granted under the Restated Stock Plan.
(6) Stock Appreciation Rights. The Compensation and Stock Option Committee may, either alone or in connection with the grant of another award grant stock appreciation rights, the terms of which will be set forth in an agreement.
Market Value of our Common Stock Underlying Outstanding Options. As of September 7, 2011,February 24, 2014, the approximate market value of our common stock underlying outstanding options to be issued was $488,000$3,425,000 based upon 775,000 options granted to employees, officers and directors that have not yet been exercised and 2,132,5471,840,000 shares of restricted stock or restricted stock units not yet vested under the Restated Stock Plan. For further information regarding shares authorized for issuance under our equity compensation plans, please see below under "Equity Compensation Plan Information."
Change in Control. Unless otherwise provided in an award agreement, upon the occurrence of a "Change in Control" (as defined in the Restated Stock Plan), all options and stock appreciation rights will automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any common stock awards, restricted common stock, RSUs, performance shares or performance share units granted will automatically lapse.
Adjustments. The Restated Stock Plan provides that in the event of certain corporate events or changes in the common stock, awards and the number of shares under the Restated Stock Plan may be adjusted to reflect such event.
Amendment and Termination. If the adoption of the Restated Stock Plan is approved by our stockholders,In general, the Restated Stock Plan will expire on October 26, 2021 (except as to awards outstanding on that date). The Board of Directors may terminate or amend the Restated Stock Plan in any respect at any time, except that, no amendment will be made without our common stockholder approval, if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and, no amendment will be made that would adversely affect the rights of a participant without such participant's written consent, except as provided under Adjustments.
jurisdiction in which he works and/or resides. This summary is for general information purposes only and is not tax advice.
Section 162(m) Limitation. Subject to a limited number of exceptions, Section 162(m) of the Code denies a deduction to a publicly held corporation for payments of remuneration to certain employees to the extent the employee's remuneration for the taxable year exceeds $1,000,000. For this purpose, remuneration attributable to stock options is included within the $1,000,000 limitation. However, to the extent that certain procedural requirements are met (e.g., the Restated Stock Plan is approved by our common stockholders, grants are made by the Compensation and Stock Option Committee, the exercise price is equal to the fair market value of the underlying shares upon grant, etc.), gain from the exercise of stock options should not be subject to the $1,000,000 limitation. We have attempted to structure the Restated Stock Plan in such a manner that the remuneration attributable to the stock options will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the Internal Revenue Service or an opinion of counsel regarding this issue.
Non-Qualified Stock Options. An individual receiving a non-qualified stock option should not recognize taxable income at the time of grant. A participant should generally recognize ordinary compensation income in an amount equal to the excess, if any, in the fair market value of the option shares on exercise of the non-qualified stock options over the exercise price thereof. In general, subject to the limitations set forth in Section 162(m) and discussed above, we are entitled to deduct from our taxable income the amount that the participant is required to include in ordinary income at the time of such inclusion.
Incentive Stock Options. An individual granted an incentive stock option will not generally recognize taxable income at the time of grant or, subject to certain conditions, at the time of exercise, although he or she may be subject to alternative minimum tax. In general, if a disqualifying disposition should occur (i.e., the shares acquired upon exercise of the option are disposed of within the later of two years from the date of grant or one year from the date of exercise), a participant will generally recognize ordinary compensation income in the year of disposition in an amount equal to the excess, if any, of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on disposition), over the exercise price thereof. We are not entitled to any deduction on account of the grant of the incentive stock options or the participant's exercise of the option to acquire common stock. However, in the event of a subsequent disqualifying disposition of such shares of common stock acquired pursuant to the exercise of an incentive stock option under circumstances resulting in taxable compensation to the participant, subject to the limitations set forth in Section 162(m) and discussed above, in general, we should be entitled to a tax deduction equal to the amount treated as taxable compensation to the participant.
Section 280G of the Code. Under certain circumstances, the accelerated vesting or settlement of awards in connection with a change in control may 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 participant may be subject to a 20% excise tax and we may be denied a federal income tax deduction.
Section 409A of the Code. In general, awards under the Restated Stock Plan are intended to be exempt from, or to comply with, the requirements of Section 409A of the Code, which governs the payment of non-qualified deferred compensation. To the extent that the Restated Stock Plan or awards under the Restated Stock Plan fail to comply with the requirements of Section 409A of the Code, participants may be subject to a 20% additional tax and premium interest on payments.
PROPOSAL 35
ADVISORY VOTE ON COMPENSATION OFTO APPROVE NAMED EXECUTIVE OFFICERSOFFICER COMPENSATION
As required by Section 14A of the Exchange Act, which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are seeking stockholder approval on an advisory, non-binding basis of the compensation of our Named Executive Officers as disclosed in the section of this proxy statement titled "Executive"Executive Officer Compensation.Compensation." In this Proposal 3,5, stockholders are being asked to vote on the following advisory resolution:
"RESOLVED, that the stockholders approve, on an advisory basis, the compensation ofpaid to our Named Executive Officers, as disclosed pursuant to Item 402(m) through (q) of Regulation S-K, including the compensation tables and the other narrative executive compensation disclosure in the Proxy Statement for our 20112014 Annual Meeting of Stockholders."
Stockholders are urged to carefully read the"Executivethe "Executive Officer Compensation"Compensation" section of this Proxy Statement, which discusses in detail how our compensation policies and procedures, implementincluding our compensation philosophy, and to refer to the related executive compensation tables. TheIn addition to a fixed amount of base salary, the compensation of our Named Executive Officers is based on a design that ties a substantial percentage of an executive's additional compensation to our attainment of financial and other performance measures that, our Board of Directors believes, promote the creation of long-term stockholder value and position our company for long-term success. As described more fullydisclosed in the Executive Officer Compensation section, the mix of fixed- and performance-based compensation, as well as the terms of restricted stock awards, are designed to enable our company to attract and maintain top talent while, at the same time, creating a close relationship between our company's performance and overall stockholder return and the Named Executive Officers' compensation. Our Compensation Committee and Board of Directors believe that the design of the program, and hence the compensation awarded to Named Executive Officers under the current program, fulfills this objective.
Although the vote is advisory and non-binding, our Board of Directors and Compensation Committee value the opinions that our stockholders express in their votes and will consider the voting results in connection with their ongoing evaluation of our compensation program.
PROPOSAL 4ADVISORY VOTE ON FREQUENCY OF FUTURE VOTES ON COMPENSATION OFNAMED EXECUTIVE OFFICERS
Section 14A of the Exchange Act, which was added under the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires us to submit a non-binding, advisory resolution to stockholders at least once every six years to indicate how frequently they believe we should seek an advisory vote on the compensation of our Named Executive Officers. In this Proposal 4, we are seeking an advisory, non-binding determination from our stockholders as to the frequency with which stockholders would have an opportunity to provide an advisory approval of our executive compensation program. We are providing stockholders the option of selecting a frequency of every one, two or three years, or abstaining. In voting on this proposal, you should mark your proxy for one, two or three years based on your preference as to the frequency with which future advisory votes on executive compensation should be held. You may also abstain from voting on this proposal.
Our Board of Directors recommends that future advisory votes on the compensation of our Named Executive Officers occur every three years because our Board and Compensation Committee believe that this frequency will provide the most effective means for conducting and responding to the advisory vote based on a number of considerations, including the following:
Stockholders are not being asked to approve the recommendation of our Board of Directors, but rather to indicate their choice among these frequency options.
Although the result of this vote is advisory and non-binding, our Compensation Committee and Board of Directors value the opinions that our stockholders express in their votes and will consider our stockholders' concerns and take them into account in determining how frequently future advisory votes on the compensation of our Named Executive Officers will occur.
Q: What is the vote required to approve Proposal 4?
will be voted in favor of approving the advisory vote to hold future advisory votes on the compensation of our Named Executive Officers every THREE YEARS.
Q: How does the Board of Directors recommend I vote?
PROPOSAL 56
RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of Directors has appointed Ernst & Young LLP, or E&Y, as our independent registered public accounting firm for the fiscal year ending November 30, 2011,2014, subject to ratification by our common stockholders at our annual meeting. Representatives of E&Y will be present at the annual meeting and will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of September 8, 2011February 24, 2014 concerning beneficial ownership, as that term is defined in Rule 13d-3 of the Exchange Act, of common stock held by (1) each person or entity known by us to beneficially own more than 5% of our outstanding common stock, (2) each of our directors and nominees for election as a director, (3) each of our named executive officers, and (4) all of our directors and executive officers as a group. The information as to beneficial ownership has been furnished by our respective common stockholders, directors and executive officers, and, unless otherwise indicated, each of our common stockholders has sole voting and investment power with respect to the shares beneficially owned. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities.
Unless indicated below, to our knowledge, the persons and entities named in the table below have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Pursuant to the rules of the SEC, certain shares of our common stock that a beneficial owner set forth in this table has a right to acquire within 60 days of the date hereof (pursuant to the exercise of options or warrants for the purchase of shares of common stock) are deemed to be outstanding for the purpose of computing the percentage ownership of that owner, but are not deemed outstanding for the purpose of computing percentage ownership of any other beneficial owner shown in the table. Percentages are calculated based on 64,879,70768,647,337 shares outstanding (excluding treasury shares) as of September 8, 2011.February 24, 2014. The address for the officers and directors is our corporate office located at 2340 South Eastern Avenue, Commerce, California, 90040.
Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Common Stock | |||||
|---|---|---|---|---|---|---|---|
Marc B. Crossman | 2,359,730 | (1) | 3.43 | % | |||
Chief Executive Officer, President and Director | |||||||
Hamish Sandhu | 234,431 | * | |||||
Chief Financial Officer | |||||||
Joseph M. Dahan | 11,874,212 | 17.30 | % | ||||
Creative Director and Director | |||||||
Peter Kim | 0 | * | |||||
CEO of Hudson Subsidiary and Director | |||||||
Samuel J. (Sam) Furrow | 1,052,123 | (2) | 1.53 | % | |||
Chairman of Board of Directors | |||||||
Joanne Calabrese | 91,325 | * | |||||
Director | |||||||
Kelly Hoffman | 50,000 | (3) | * | ||||
Director | |||||||
Suhail R. Rizvi | 192,830 | (4) | * | ||||
Director | |||||||
Kent Savage | 345,526 | (5) | * | ||||
Director | |||||||
Tom O'Riordan | 0 | * | |||||
Former Director | |||||||
Mill Road Capital II, L.P. | 3,506,885 | (6) | 5.1 | % | |||
| | | | | | | | |
All directors and executive officers, as a group (9 persons) | 16,200,177 | 23.43 | % | ||||
Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Common Stock | ||||||
|---|---|---|---|---|---|---|---|---|
Marc B. Crossman | 1,725,024 | (1) | 2.64 | % | ||||
Chief Executive Officer, President and Director | ||||||||
Hamish Sandhu | 37,560 | (2) | * | |||||
Chief Financial Officer | ||||||||
Joseph M. Dahan | 11,395,276 | (3) | 17.56 | % | ||||
Creative Director and Director | ||||||||
Samuel J. (Sam) Furrow | 1,916,399 | (4) | 2.95 | % | ||||
Chairman of Board of Directors | ||||||||
Kelly Hoffman | 127,945 | (5) | * | |||||
Director | ||||||||
Tom O'Riordan | 90,664 | * | ||||||
Director | ||||||||
Suhail R. Rizvi | 89,548 | (6) | * | |||||
Director | ||||||||
Kent Savage | 338,994 | (7) | * | |||||
Director | ||||||||
All directors and executive officers, as a group (8 persons) | 15,721,410 | 23.64 | % | |||||
one-half on November 6, 2012;December 17, 2015; (ii) 50,000 shares held for the accounts in trust for Mr. Crossman's minor children, for which Mr. Crossman's father is the trustee; and (iii) 217,874200,000 shares issuable upon the exercise of currently exercisable (or exercisable within 60 days) options held for Mr. Crossman's personal account. Mr. Crossman disclaims beneficial ownership of shares held for the accounts in trust for his minor children; and (iv) 260,182 RSUs which vest on November 6, 2011.children. Mr. Crossman has pledged under the terms of certain loan agreements an aggregate of 1,200,000 shares of common stock held in his personal account.
Executive Officers
Our executive officers and age and position as of September 8, 2011February 24, 2014 are as follows:
Name | Age | Position | |||
|---|---|---|---|---|---|
Marc B. Crossman | Chief Executive Officer, President and Director | ||||
Hamish Sandhu | Chief Financial Officer | ||||
Joe Dahan | Creative Director and Director | ||||
Peter Kim | 43 | Director and Chief Executive Officer of Hudson Clothing Holdings, Inc. | |||
Marc B. Crossman has served as our Chief Executive Officer since January 2006, our President since September 2004 and a member of our Board of Directors since January 1999. From March 2003 until August 2007, Mr. Crossman also served as our Chief Financial Officer. From January 1999 until March 2003, Mr. Crossman served as a Vice President and Equity Analyst with J.P. Morgan Securities Inc., New York City, New York. From September 1997 until January 1999, Mr. Crossman served as a Vice President and Equity Analyst with CIBC Oppenheimer Corporation. Mr. Crossman received his B.S. degree in Mathematics from Vanderbilt University.
Hamish Sandhu has served as our Chief Financial Officer since August 2007. From January 2006 until August 2007, Mr. Sandhu was Chief Financial Officer of California Tan, Inc., a consumer products company manufacturing and marketing lotion and equipment to the indoor tanning industry. From September 2001 until December 2005, Mr. Sandhu was Chief Financial Officer of Ancra International LLC, a manufacturer of aircraft cargo systems and trucking restraint products. Prior to that, Mr. Sandhu held various Chief Financial and Corporate Controller positions at other manufacturing and distribution based companies. Mr. Sandhu began his career at Deloitte & Touche LLP.LLP as a certified public accountant. Mr. Sandhu has a B.A. degree in Economics and Accounting from Australian National University and holds a Certified Public Accountant's license.
Joe Dahan has served as the president and head designer for our Joe's Jeans Subsidiary, Inc. since its formation in February 2001 and as our Creative Director and member of our Board of Directors since October 2007. Mr. Dahan is responsible for the design, development and marketing of Joe's products. From 1996 until 2001, Mr. Dahan was the head designer for Azteca, where he was responsible for the design, development and merchandising of product lines developed by Azteca. From 1989 until 1996, Mr. Dahan was engaged in the design and development of apparel products for a company of which he was an owner and operator.
Peter Kim has served a member of our Board of Directors and the chief executive officer of our wholly owned subsidiary, Hudson Clothing Holdings, Inc., or Hudson, since our acquisition of Hudson on September 30, 2013. Mr. Kim is responsible for the operation of our Hudson subsidiary, a leading global designer and marketer of women's and men's premium branded denim apparel. Mr. Kim has been the Chief Executive Officer and member of the Board of Directors of Hudson since he founded it in 2002.
Other Significant Employees
Elena Pickett (age 49)52) has served as our Senior Vice President of Sales since September 2005. From 2000 to 2005, Ms. Pickett served as the Director of Sales for wholesale apparel sales for Lucky Brand Jeans®, a division of Liz Claiborne Inc. From 1995 to 2000, Ms. Pickett served as the Sales Manager for the West Coast region for Just For Wraps, a junior apparel company based in Los Angeles. Prior to that, Ms. Pickett also held various sales positions at Pepe Clothing, including West Coast Sales Manager for women's denim.
Executive Officer Compensation
This following discussion will focusof our executive officer compensation focuses on the following: (1) the objectives of the executive compensation policies and practices, (2) the objectives that the compensation program is designed to reward; (3) each element of compensation, (4) the rationale for each element of compensation, (5) the methodologies utilized by us in determining the amounts to pay for each element, and (6) how an element of compensation and our rationale for each element fit together within our overall compensation objectives. This discussion relates to our Named Officers. For fiscal 2010,Principal Executive Officer, Principal Financial Officer, and our Creative Director, or collectively, our Named Executive Officers.
For our fiscal year ended November 30, 2013, our Named Executive Officers include:
Executive Officers are Marc Crossman, our President and Chief Executive Officer, Hamish Sandhu, our Chief Financial Officer and Joseph Dahan, our Creative Director.
Compensation Philosophy
Our executive compensation program is designed to provide proper incentivesincentive to management to maximize performance in order to encourage creation of stockholder value and achievement of strategic corporate objectives, attract and retain qualified, skilled and dedicated executives on a long-term basis, reward past performance and provide incentives for future performance.
In keeping with these objectives, our goals aregoal is to (1) align the interests of the executive officers with the interests of our stockholders, (2) ensure the long-term commitment of our management team, and (3) ensure accountability for both our overall performance and the individual's performance and contribution.
In setting the level of cash and equity compensation, the Compensation Committee of our Board of Directors considers various factors, including our overall performance and the individual's performance during the year, the uniqueness and relative performance of the executive's skill set, the expected future contribution to us and competitive conditions. In addition, the Compensation Committee considered our stockholder affirmative 'say on pay' vote at our annual meeting in October 2011 and continued to apply the same principles in determining the amounts and types of executive compensation.
Elements of Compensation
Our compensation structure for our Named Executive Officers consists of a combination of (1) base salary, (2) long-term incentive awards (equity awards),primarily through grants of restricted stock and restricted stock units pursuant to our stock incentive plans, (3) company paid benefits, including medical insurance, dental insurance, 401(k) Plan, disability insurance, life insurance and flexible spending accounts, and (4) discretionary bonuses.cash bonuses for certain of our Named Executive Officers. The Compensation Committee also takes into account certain change in control provisions available to our Named Executive Officers.
Both of Mr. Crossman, our President and Chief Executive Officer, and Mr. Dahan, our Creative Director, have employment agreements. Mr. Sandhu is an at-will employee. Mr. Sandhu was given an employment offer letter in connection with his offer of employment as our Chief Financial Officer in August 2007.
Engagement of Compensation Consultant
In September 2007, our Compensation Committee engaged a compensation consultant, Mercer Human Resources Consulting, to serve as an independent advisor to the Compensation Committee to conduct a review of the compensation for our Chief Executive Officer and non-employee directors, examine the pay level and practices of a group of peer companies similar in terms of size and industry, highlight trends in such compensation and provide recommendations regarding our practices. Mercer prepared for our Compensation Committee a competitive analysis of compensation utilizing comparable company compensation data, including size and industry appropriate survey data and advice around short and long-term incentive programs. The information prepared by Mercer provided the Compensation Committee with data to allow it to evaluate and determine an appropriate amount for a bonus and equity award grant for our Chief Executive Officer for fiscal 2007 and compensation for non-employee directors. More particularly, this information provided the basis for discussion of compensation for inclusion in the employment agreement for fiscal 2008 for our Chief Executive Officer and was utilized in connection with evaluating compensation for non-employee directors.
The peer companies selected for comparison purposes included other apparel, footwear and accessories companies of a comparable size with publicly available information. The companies in the peer group selected in 2007 were as follows: True Religion; Cutter & Buck; Lacrosse Footwear; Iconix Brand Group; Everlast Worldwide; Sport-Haley; Chaus; Cygne Designs; Isaacs IC & Co.; Nitches; Cherokee; and People's Liberation.
The information presented included data for the 75th percentile, 50th percentile, and 25th percentile. Our Compensation Committee determined that based upon the data presented, the total direct compensation for our Chief Executive Officer in prior years was just below the 25th percentile due to a lack of cash bonus opportunity. Thus, the Compensation Committee believed that a cash bonus would be an important element of compensation for our Chief Executive Officer.
Base Salary
Our Compensation Committee reviews base salary for Chief Executive Officer on an annual basis, and for fiscal 2008 considered the recommendation by the Chief Executive Officer for the other Named Executive Officers other than the Chief Executive Officer. The Compensation Committee utilized the data from Mercer as a basis for the determination of our Chief Executive Officer's salary for fiscal 2008. In fiscal 2008, our Chief Executive Officer's base salary was increased to $429,300, which represented the amount in the 50th percentile of the peer group companies. Our Chief Executive Officer's base salary has remained unchanged since fiscal 2008.
Bonuses
Historically, the Compensation Committee did not grant a bonus to our Chief Executive Officer. Recognizing the importance of this element of compensation, in fiscal 2008, the Compensation Committee included in Mr. Crossman's employment agreement a bonus provision which targeted his bonus at 50 percent of his base salary based upon the achievement of certain discretionary performance measures. The Compensation Committee discussed the formal criteria for Mr. Crossman's 2008 performance measures noting that the performance measures set for this fiscal year would be utilized in future fiscal years. The Compensation Committee discussed various methods of measurement noting that the following were drivers to our overall performance. Those methods of measurement included Earnings Before Income, Taxes and Depreciation and Amortization (EBITDA), net profits, store performance, net sales, gross margins and inventory. After this discussion, the Compensation Committee decided to utilize EBITDA and net sales weighted equally as the performance measures for Mr. Crossman's bonus for fiscal 2010. Based upon these performance measures, the Compensation Committee noted that Mr. Crossman had met certain performance measures on both EBITDA and net sales and thus utilizing the bonus target of $375,000 from fiscal 2009, Mr. Crossman was awarded a bonus of $328,125 for fiscal 2010.
Long-Term Incentive Compensation
Our Compensation Committee administers our 2004 Stock Incentive Plan and believes that the long-term commitment of our employees, including our Named Executive Officers, is an important factor in our future performance. The primary element used to promote the long-term performance and commitment of our Named Executive Officers is long-term incentive compensation through grants of stock options and restricted stock. In fiscal 2007, the Compensation Committee shifted from its past practice of granting options to purchase shares of our common stock to granting restricted common stock. This decision to change past practices was in part due to fluctuations in the market price of our common stock and the decision to re-price out-of-the-money incentive stock options in fiscal 2006 as part of a retention incentive. The Compensation Committee believes that equity grants with time-based vesting restrictions aid in retention and better align the interests of our Named Executive Officers with those of our stockholders. Further, the equity grants motivate our Named Executive Officers to make long-term decisions that are in our best interest and to provide incentive to maximize stockholder value.
We do not coordinate the timing of equity award grants with the release of financial results or other material announcements by us and generally, we have made annual equity grants to our Chief Executive Officer, other Named Executive Officers and non-employee directors in connection with our annual meeting of stockholders.
We believe that providing Named Executive Officers who have responsibility for our management and growth with an opportunity to increase their stock ownership aligns the interests of the executive officers with those of our stockholders. Accordingly, the Compensation Committee also considers equity grants to be an important aspect in compensating and providing incentives to management and employees. The Compensation Committee determines the number of shares for each stock incentive grant based upon the executive officer's role and responsibilities, the executive officer's base salary, the recommendation of our Chief Executive Officer of the job performance of the individual. For the equity grants to our Chief Executive Officer and our non-employee directors, the Compensation Committee also utilized the data presented and compared with comparable awards to individuals in similar positions in our industry.
Based upon this data, Mr. Crossman's employment agreement contained a provision which set forth his long-term incentive compensation through a grant of restricted stock or restricted stock units pursuant to the 2004 Incentive Plan with a fair market value equal to 100 percent of his base salary. In January 2011, for service during fiscal 2010, Mr. Crossman received a grant of restricted stock in the amount of 260,182 shares that vest1/3 on each anniversary date of the grant in 2012, 2013 and 2014, respectively. Mr. Dahan and Mr. Sandhu, our other Named Executive Officers, each received a grant of restricted stock units, or RSUs, in the amount of 181,818 and 69,545, respectively, that vest in an amount equal to1/8 of the total grant on June 18, 2011 and thereafter every six months until the RSUs are fully vested on December 18, 2014.
Benefits
Benefits offered to our Named Executive Officers are substantially the same as those offered generally to all of our employees and generally include medical insurance, dental insurance, 401(k) plan, disability insurance, life insurance and flexible spending account. For our Named Executive Officers, we pay all premiums associated with such benefits as described in footnote 2 to the Summary Compensation Table.
Change in Control Provisions
Our Chief Executive Officer, our Creative Director and our Chief Financial Officer have change in control provisions in each person's employment agreement and employment offer letter, respectively. These provisions provide these Named Executive Officers with certain compensation arrangements in the event that a change in control occurs. In addition, our 2004 Stock Incentive Plan contains a change in control provision which provides for the immediate vesting in full of all grants or lapse of all restrictions for all grantees, including our Named Executive Officers, in the event a change in control occurs.
Relationship Between Elements and Objectives
In determining the total amount and mixture of the compensation package for our Chief Executive Officer, our Compensation Committee subjectively considers individual performance, including past and expected contributions, overall performance of the company as a whole, long-term goals and such other factors as our Compensation Committee determines appropriate. The use of both cash compensation (salary and bonus) and long-term compensation (equity awards) achieves the objectives of attracting, motivating and retaining our Chief Executive Officer, other Named Executive Officers and employees. Long-term compensation realized through the use of equity awards achieves the objectives of aligning
management's interests with stockholders' interests and ensuring the long-term commitment of the management team. For fiscal 2010, the Compensation Committee considered, evaluated and discussed the data presented to provide the basis for its discussion and decision regarding compensation.
Executive Management's Involvement in Compensation Policies
Our Compensation Committee determines the compensation of our Chief Executive Officer and directors and reviewed and approved our compensation of our Creative Director and Chief Financial Officer based upon the recommendation from our Chief Executive Officer regarding expected contributions, long term goals and other factors appropriate to the respective positions. Our Compensation Committee approves all grants of equity compensation, including the pool for non-officer employees.
Tax Considerations
We generally intend to qualify executive compensation for deductibility without limitation under section 162(m) of the Code. Section 162(m) provides that, for purposes of the regular income tax and the alternative minimum tax, the otherwise allowable deduction for compensation paid or accrued with respect to a covered employee of a publicly-held corporation (other than certain exempt performance-based compensation) is limited to no more than $1 million per year and approved by "outside directors" within the meaning of Section 162(m). Certain payments to an executive exceeded the $1 million limit and did not otherwise meet the requirements of Section 162(m). Thus, such payments will not be deductible.
Summary Compensation Table
The following table provides certain summary information concerning the compensation earned by our Named Executive Officers for the fiscal yearyears ended November 30, 2010.2013 and November 30, 2012, respectively (rounded to the nearest thousand).
Name and Principal Position | Year | Salary(1) | Bonus | Stock awards(3) | All other compensation(4) | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2013 | $ | 463,000 | $ | — | (5) | 429,000 | (7) | $ | 24,000 | $ | 916,000 | |||||||
Chief Executive Officer and | 2012 | 462,000 | 384,000 | 429,000 | 25,000 | 1,300,000 | |||||||||||||
President | |||||||||||||||||||
Hamish Sandhu | 2013 | 293,000 | — | 183,000 | (8) | 23,000 | 499,000 | ||||||||||||
Chief Financial Officer | 2012 | 269,000 | — | 82,000 | 24,000 | 375,000 | |||||||||||||
Joseph Dahan | 2013 | 317,000 | — | 300,000 | (9) | 2,760,000 | (10) | 3,377,000 | |||||||||||
Creative Director | 2012 | 317,000 | — | 150,000 | 1,881,000 | 2,348,000 | |||||||||||||
Peter Kim | 2013 | 85,000 | (2) | — | (6) | — | 3,500 | 88,500 | |||||||||||
| 2012 | — | — | — | — | — | ||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Stock awards(1) | All other compensation(2) | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2010 | $ | 429,300 | $ | 328,125 | $ | — | $ | 55,000 | $ | 812,425 | |||||||||
Chief Executive Officer | 2009 | 429,300 | 375,000 | 527,000 | (4) | 58,000 | 1,389,300 | |||||||||||||
and President | 2008 | 429,300 | (3) | 325,000 | 429,000 | (5) | 55,000 | 1,238,300 | ||||||||||||
Hamish Sandhu | 2010 | 255,000 | — | — | 36,000 | 291,000 | ||||||||||||||
Chief Financial Officer | 2009 | 255,000 | — | 108,000 | (6) | 27,000 | 390,000 | |||||||||||||
| 2008 | 207,000 | — | 82,000 | (7) | 11,000 | 300,000 | ||||||||||||||
Joseph Dahan | 2010 | 300,000 | 250,000 | — | 1,818,000 | (10) | 2,368,000 | |||||||||||||
Creative Director | 2009 | 300,000 | — | 319,000 | (8) | 1,719,000 | (10) | 2,338,000 | ||||||||||||
| 2008 | 300,000 | — | 300,000 | (9) | 1,750,000 | (10) | 2,350,000 | |||||||||||||
Name and principal position | Year | Benefit of company paid health insurance(a) | Benefit of company paid life insurance(a) | Unused vacation payout(b) | 401(k) match | Contingent consideration(c) | Total | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2010 | $ | 16,000 | $ | — | $ | 33,000 | $ | 6,000 | $ | — | $ | 55,000 | |||||||||
| 2009 | 15,000 | 7,000 | 31,000 | 5,000 | — | 58,000 | ||||||||||||||||
| 2008 | 15,000 | — | 35,000 | 5,000 | — | 55,000 | ||||||||||||||||
Hamish Sandhu | 2010 | 19,000 | — | 12,000 | 5,000 | — | 36,000 | |||||||||||||||
| 2009 | 16,000 | — | 6,000 | 5,000 | — | 27,000 | ||||||||||||||||
| 2008 | 4,000 | — | 3,000 | 4,000 | — | 11,000 | ||||||||||||||||
Joseph Dahan | 2010 | 16,000 | — | 17,000 | — | 1,785,000 | 1,818,000 | |||||||||||||||
| 2009 | 15,000 | — | 32,000 | — | 1,672,000 | 1,719,000 | ||||||||||||||||
| 2008 | 10,000 | — | 17,000 | — | 1,723,000 | 1,750,000 | ||||||||||||||||
Name and principal position | Year | Benefit of company paid health insurance(a) | 401(k) match | Contingent consideration(b) | Fixed Payments(c) | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Marc Crossman | 2013 | 18,000 | 6,000 | — | — | 24,000 | |||||||||||||
| 2012 | 19,000 | 6,000 | — | — | 25,000 | ||||||||||||||
Hamish Sandhu | 2013 | 18,000 | 5,000 | — | — | 23,000 | |||||||||||||
| 2012 | 19,000 | 5,000 | — | — | 24,000 | ||||||||||||||
Joseph Dahan | 2013 | 18,000 | — | 311,000 | 2,431,000 | 2,760,000 | |||||||||||||
| 2012 | 19,000 | — | 1,862,000 | — | 1,881,000 | ||||||||||||||
Peter Kim | 2013 | 3,000 | 500 | — | — | 3,500 | |||||||||||||
| 2012 | — | — | — | — | — | ||||||||||||||
thereafter over a four year period. This figure represents the remainingaggregate dollar amount to vest.
Grants of Plan-Based Awards
Our Named Executive Officers did not receive any awards pursuant to our 2004 Stock Incentive Plan in fiscal 2010. Rather, the grants of plan based awards were made in January 2011 and will be disclosed in our filings with respect to fiscal 2011.
Outstanding Equity Award at 20102013 Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by our Named Executive Officers during our fiscal year ended November 30, 2010:2013.
| | Option awards | Stock awards | | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of securities underlying unexercised options | Number of securities underlying unexercised options | Option exercise price | Option expiration date | Number of shares or units of stock that have not vested | Market value of shares or units of stock that have not vested | Equity incentive plan awards: | Equity incentive plan awards: | |||||||||||||||||
Name | Exercisable | Unexercisable | | | | | Number of unearned shares, units or other rights that have not vested | Market or payout value of unearned shares, units or other rights that have not vested | |||||||||||||||||
Marc Crossman | — | — | — | — | 420,882 | (1) | $ | 505,058 | |||||||||||||||||
| — | — | — | — | 447,188 | (2) | $ | 536,626 | ||||||||||||||||||
| — | — | — | — | 86,728 | (3) | $ | 104,074 | ||||||||||||||||||
| 200,000 | (4) | — | $ | 1.63 | 3-Sep-14 | ||||||||||||||||||||
Hamish Sandhu | — | — | — | — | 156,625 | (5) | $ | 187,950 | |||||||||||||||||
| — | — | — | — | 72,857 | (6) | $ | 87,428 | ||||||||||||||||||
| — | — | — | — | 26,079 | (7) | $ | 31,295 | ||||||||||||||||||
| — | — | — | — | 19,375 | (8) | $ | 23,250 | ||||||||||||||||||
Joseph Dahan | — | — | — | — | 395,551 | (5) | $ | 474,661 | |||||||||||||||||
| — | — | — | — | 133,928 | (6) | $ | 160,714 | ||||||||||||||||||
| — | — | — | — | 68,182 | (7) | $ | 81,818 | ||||||||||||||||||
| — | — | — | — | 56,875 | (8) | $ | 68,250 | ||||||||||||||||||
Peter Kim | — | — | — | — | — | — | |||||||||||||||||||
| | Option awards | Stock awards | | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Number of securities underlying unexercised options | Number of securities underlying unexercised options | Option exercise price | Option expiration date | Number of shares or units of stock that have not vested | Market value of shares or units of stock that have not vested | Equity incentive plan awards: | Equity incentive plan awards: | |||||||||||||||||
Name | Exercisable | Unexercisable | | | | | Number of unearned shares, units or other rights that have not vested | Market or payout value of unearned shares, units or other rights that have not vested | |||||||||||||||||
Marc Crossman | 408,857 | (1) | $ | 650,083 | |||||||||||||||||||||
| 260,182 | (2) | $ | 413,689 | ||||||||||||||||||||||
| 10,000 | (3) | $ | 1.00 | 17-Apr-12 | |||||||||||||||||||||
| 7,874 | (3) | $ | 1.27 | 27-Nov-12 | |||||||||||||||||||||
| 200,000 | (3) | $ | 1.63 | 3-Sep-14 | |||||||||||||||||||||
Hamish Sandhu | 135,625 | (4) | $ | 215,644 | |||||||||||||||||||||
| 93,750 | (5) | $ | 149,063 | ||||||||||||||||||||||
| 37,500 | (6) | $ | 59,625 | ||||||||||||||||||||||
Joseph Dahan | 398,125 | (4) | $ | 633,019 | |||||||||||||||||||||
| 341,250 | (5) | $ | 542,588 | ||||||||||||||||||||||
Table of each month beginning on September 27, 2007. This figure represents the remaining amount to vest.Contents
Option Exercises and Stock Vested During Fiscal 20102013
There were 1,475,641 option exercises by our Named Executive Officers in our fiscal year ended November 30, 2010. During fiscal 2010, 818,4782013, 591,264 shares of restricted stock or RSUs vested for our Named Executive Officers. No Named Executive Officers exercised any options in fiscal 2013.
| | Stock Awards | Stock Awards | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of shares acquired on Exercise/Vesting (#) | Value Realized on Exercise/Vesting ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||
Marc Crossman | 1,818,869 | $ | 3,665,000 | 310,320 | $ | 357,000 | ||||||||
Hamish Sandhu | 81,875 | $ | 151,000 | 88,279 | $ | 122,000 | ||||||||
Joseph Dahan | 393,375 | $ | 773,000 | 192,666 | $ | 252,000 | ||||||||
Peter Kim | — | — | ||||||||||||
Employment Contracts and Termination of Employment and Change in Control Arrangements
Change in Control Provisions
Our Chief Executive Officer, our Creative DirectorMessrs. Crossman and our Chief Financial OfficerDahan each have change in control provisions in each person's employment agreement and employment offer letter, respectively.agreement. These provisions provide these Named Executive OfficersMessrs. Crossman and Dahan with certain compensation arrangements in the event that a change in control occurs. In addition, our Amended and Restated 2004 Stock Incentive Plan containsand our 2004 Stock Incentive Plan each contain a change in control provision which provides for the immediate vesting in full of all grants or lapse of all restrictions for all grantees, including our Named Executive Officers, in the event a change in control occurs.
Marc Crossman
On May 30, 2008, we entered into an Executive Employment Agreement, or the Crossman Employment Agreement, with Mr. Crossman to serve as our President and Chief Executive Officer. Mr. Crossman has been serving as our President since September 2004 and as Chief Executive Officer since January 2006 under an employment at-will arrangement. In connection with the execution of the Crossman Employment Agreement, Mr. Crossman received the second payment of his bonus for fiscal 2007 in the amount of $150,000, as described above.
Under the terms of the Crossman Employment Agreement, Mr. Crossman receives an annual salary of $429,300 and is entitled to receive other cash and non-cash compensation, including an annual discretionary bonus targeted at 50% of his base salary based upon the achievement of financial and other performance criteria as set forth in the Crossman Employment Agreement, an annual grant of equity compensation pursuant to the 2004 Stock Incentive Plan,our stock incentive plans, and life and disability insurance policies paid on his behalf. The Crossman Employment Agreement iswas effective as of December 1, 2007, the commencement of our 2008 fiscal year, and had an initial term of two years, which automatically renewed for another two year period on December 1, 2009.2009, December 1, 2011 and December 1, 2013, respectively. The Crossman Employment Agreement automatically renews for additional two year periods unlessif we do not or Mr. Crossman does not provide 180 days' advanced notice of non-renewal prior to the end of the term or upon the occurrence of a change in control.
In the event that Mr. Crossman's employment is terminated by us other than for cause,Cause, terminated by Mr. Crossman for good reason,Good Reason, terminated by us within 18 months following a changeChange in controlControl and without cause,Cause, or terminated by Mr. Crossman within 18 months following a changeChange in controlControl and for good reason,Good Reason, Mr. Crossman will be entitled to certain severance payments and benefits, including an amount equal to 24 months of his prior year's base salary and bonus in exchange for his execution of a release of claims. Mr. Crossman will not be entitled to severance benefits if he dies during the term of his employment, he is terminated for causeCause or due to disability,Disability, he terminates his employment for a reason other than a good reason, or revokes his agreement to release us from any and all claims related to his employment. "Cause" is defined as: (i) conviction of an offense involving an act of dishonesty, fraud or any other act of moral turpitude, or using alcohol, narcotics or
illegal drugs to such an extent that it repeatedly materially adversely affects executive's performance hereunder; (ii) substantial and willful failure to perform specific and lawful written directives of the Board; (iii) willful and knowing violation of any rules or regulations of any governmental or regulatory body that is materially injurious to the financial condition of the company; (iv) conviction of or plea of guilty or nolo contendere to a felony or an act of moral turpitude; or (v) a material breach of the terms and conditions of the employment agreement. "Disability" is defined as executive's incapacity due to physical or mental illness (as determined in good faith by a physician acceptable to the company and executive), (i) absent from the full-time performance of his duties for 120 consecutive days during any 12 month period or (ii) if a physician acceptable to the company and executive advises us that it is likely that executive will be unable to return to the full-time performance of his duties for 120 consecutive days during the succeeding 12 month period. "Good Reason" is defined as (i) a material breach of the employment agreement by us that is not cured in the applicable time periods; (ii) relocation of the company more than 50 miles from Commerce, California; or(iii) a material reduction in Mr. Crossman's base salary. A "Change in Control" is defined as (i) a change in the our incumbent directors such that they no longer constitute a majority of the directors; (ii) any person or entity becoming the beneficial owner of 50 percent or more of our combined voting power; (iii) the consummation of a merger, consolidation, hshare exchange ro other coprporate transaction involving us that requires the approval of our stockholders where our stockholders as a group no longer own at least 50 percent of the voting power of the surviving corporation or our board members do not constitute a majority of the new board members of the surviving corporation; or (iv) the approval by our stockholders to liquidate or dissolve.
Mr. Crossman is subject to confidentiality, non-solicitation and non-competition restrictions during the term of his employment and is subject to the confidentiality and non-solicitation provisions for a period of two years following termination of his employment.
Joseph M. Dahan
In connection with the completion of a merger between us, our Joe's Subsidiary and JD Holdings in October 2007, Mr. Dahan's employment agreement automatically became effective for service as our Creative Director. Under the employment agreement, the initial term of employment iswas for five years with automatic renewals for successive one year periods thereafter, unless terminated earlier. Mr. Dahan is entitled to
an annual salary of $300,000 and other discretionary benefits that the Compensation Committee of the Board of Directors may deem appropriate in its sole and absolute discretion.
Under the terms of the employment agreement, we may terminate the employment of Mr. Dahan for Cause or if he becomes Disabled.for Mr. Dahan's Disability. "Cause" is defined as (1)(i) a conviction, plea of guilty or nolo contendere to a felony or a crime of moral turpitude; (2)(ii) a material breach of any provision of the employment agreement that is not cured within 45 days of receipt of written notice of such breach; (3)(iii) the solicitation, persuasion or attempt at persuasion for any employee, consultant, contractor, customer or potential customer to engage in an act prohibited by the employment agreement; or (iv) a violation of any of our policies in our handbook or code of ethics and such violation constitutes a breach of the Code of Ethics or warrants termination. "Disability" is defined as inability to perform duties for 180 consecutive days or shorter periods aggregating 270 days during any 12 month period.
Should we terminate Mr. Dahan's employment for Cause or Disability, we would only be required to pay him through the date of termination. We may terminate Mr. Dahan's employment without Cause at any time upon two weeks' notice, provided that we pay him the present value of the annual salary amounts otherwise due to him for the remainder of the initial term of employment or any renewal term. Mr. Dahan may terminate his employment for Good Reason at any time within 30 days written notice. "Good Reason" is defined as (1)(i) a material breach of the employment agreement by us that is not cured within 30 days of written notice;notice or (2)(ii) Mr. Dahan's decision to terminate employment
at any time after 18 months following a Change in Control. A "Change in Control" is defined as (1)(i) the sale or disposal of all or substantially all of the assets; (2)(ii) the merger or consolidation with another company provided that our stockholders as a group no longer own at least 50 percent of the voting power of the surviving corporation; (3)(iii) any person or entity becoming the beneficial owner of 50 percent or more of our combined voting power; or (4)(iv) the approval by our stockholders to liquidate or dissolve. In the event that Mr. Dahan terminates his employment for Good Reason, then he will be entitled to the present value of the annual salary amounts otherwise due to him for the remainder of the initial term of employment or any renewal term. Further, Mr. Dahan may terminate his employment for any reason upon ten business days' notice and only be entitled to his salary as of the date of termination on a pro rata basis.
The employment agreement contains customary terms and conditions related to confidentiality of information, ownership by us of all intellectual property, including future designs and trademarks, alternative dispute resolution and Mr. Dahan's duties and responsibilities to us as Creative Director.
In addition, pursuant to the merger agreement, Mr. Dahan iswas entitled to, for 120 months following October 25, 2007, irrespective of his employment status, the following additional contingent consideration payments based upon our achievement of certain gross profit thresholds on sales from our Joe's® brand products. IfOn February 18, 2013, we entered into a new agreement with Mr. Dahan that provided certainty of payments to him by removing the contingencies related to the contingent consideration payments. This agreement fixed the overall amount to be paid by us for the remaining months of year six through year 10 with payments being made over an accelerated time period until November 2015 instead of October 2017. Under the agreement, the total aggregate amount Mr. Dahan will receive is $9,168,000, which will be paid in weekly installments until November 2015. In addition, Mr. Dahan agreed to a restrictive covenant relating to non-competition and non-solicitation until November 30, 2016 in addition to the restrictive covenant in the original merger agreement.
Peter Kim
In connection with the Acquisition, we have entered into an employment agreement with Peter Kim pursuant to which Mr. Kim serves as the Chief Executive Officer of Hudson. The employment agreement became effective on September 30, 2013 upon completion of the Acquisition, and has a term of three years. Mr. Kim's initial base salary will be $500,000 per year, and such amount will be reviewed by the Compensation Committee at least annually, provided that the base salary may not be decreased during Mr. Kim's term of employment. In addition to his base salary, Mr. Kim will also be eligible to receive an annual discretionary bonus targeted at 50% of his base salary, based on the satisfaction of criteria and performance standards as established in advance and agreed to by Mr. Kim and the Compensation Committee. Any bonus to be paid within 12 months of September 30, 2013, will be based on subjective performance criteria at the discretion of the Compensation Committee. The employment agreement also provides Mr. Kim with certain other benefits and the reimbursement of certain expenses.
In the event of a termination of Mr. Kim's employment for any reason or no reason, we must pay Mr. Kim for (i) his accrued but unpaid base salary through the date of termination, (ii) any accrued but unused vacation time, (iii) any unreimbursed expenses, and (iv) any bonus amounts that have been earned but have not been paid, and any bonus for the period in which termination occurred, prorated for the partial period, any rights under any benefit or equity plan, program or practice, and his rights to indemnification and directors and officers liability insurance.
In addition, in the event of a termination of Mr. Kim's employment without Cause or in the event that Mr. Kim voluntarily terminates his employment for "Good Reason", we will also be required (i) to make a severance payment to Mr. Kim equal to twelve months of his base salary, payable in twelve monthly installments and (ii) pay for the COBRA premiums (to the extent they exceed applicable
active employee rates) on our gross profitgroup medical plan for Mr. Kim and his spouse and dependents for the shorter of the first 12 months of such coverage or his period of COBRA eligibility. Our obligation to provide the foregoing severance benefits is less than $11,250,000subject to Mr. Kim's execution of a settlement agreement and release. "Cause" is defined as the same as the Crossman Employment Agreement. "Good Reason" is defined as (i) a material breach of the employment agreement by us that is not cured in the applicable fiscal year, then Mr. Dahan does not receive any additional payment. If our gross profit is from $11,251,000 to $22,500,000, then Mr. Dahan receives a payment of 11.33%time periods; (ii) relocation of the gross profit earned incompany more than 50 miles from Commerce, California; (iii) requiring Mr. Kim to report to anyone other than the applicable fiscal year. Thereafter, he earns (1) three percentCEO of Joe's; (iv) a material breach by us of any provision of the gross profitemployment agreement; or (v) a material reduction in Mr. Kim's base salary.
The employment agreement also contains exclusivity, non-compete and non-solicitation covenants generally prohibiting Mr. Kim from $22,501,000providing services to $31,500,000; (2) two percenta competitor during the term of his employment or soliciting employees during the term of his employment and for 12 months following his termination of employment. In addition, the employment agreement mandates that Mr. Kim's confidentiality obligations continue even after his termination of employment.
Mr. Kim has also entered into a non-competition agreement which also became effective on September 30, 2013 upon completion of the gross profitAcquisition, pursuant to which Mr. Kim has agreed not to engage in, compete with or permit his name to be used by or in connection with any premium denim apparel business outside his role with Hudson, that is competitive to us, Hudson or our respective subsidiaries, or to solicit certain personnel for a period of up to three years from $31,501,000 to $40,500,000; and (3) one percentthe closing of the gross profit above $40,501,000 in the applicable fiscal year. We account for these contingent payments as compensation expense.acquisition.
Hamish Sandhu
In connection with Mr. Sandhu's appointment as CFO, we entered into a written offer letter whereby Mr. Sandhu agreed to serve as our CFO. Under the terms of the offer letter, Mr. Sandhu's annual base salary was $205,000, which was increased to $255,000 in November 2008. In addition, Mr. Sandhu received a grant on August 27, 2007, pursuant to our 2004 Stock Plan, to purchase up to 100,000 shares of our common stock at an exercise price equal to the closing price of our common stock on that date. The option was forfeited2008 and $280,000 in connection with a subsequent grant of RSUs in
December 2007.2012. We also agreed to pay the full cost of participation in our health insurance plan for Mr. Sandhu and his family. Mr. Sandhu will also be entitled to six months of his monthly base salary as a severance payment in the event that a Change in Control occurs during the four years following August 27, 2007 and his employment is subsequently terminated. For purposes of the offer letter, a "Change in Control" shall be deemed to have occurred upon the closing of a transaction which: (1) we sell or otherwise dispose of all or substantially all of our assets; or (2) there is a merger or consolidation of us with any other corporation or corporations, provided that our shareholders, as a group, do not hold, immediately after such event, at least 50 percent of the voting power of the surviving or successor corporation. Notwithstanding anything to the contrary, Mr. Sandhu is an employee at-will and has not entered into an employment agreement with us.
On December 18, 2007, we entered into a Restricted Stock Unit Agreement, or RSU Award whereby we granted Mr. Sandhu an award of restricted stock units representing the right to receive 100,000 shares of our common stock, or the Restricted Stock Units, pursuant to theAmended and Restated 2004 Stock Plan. The Restricted Stock Units are scheduled to vest every six months over a four year period. In conjunction with this award, Mr. Sandhu agreed to terminate his employee stock option to purchase 100,000 shares of our common stock granted pursuant to the 2004 StockIncentive Plan, on August 27, 2007. Mr. Sandhu agreed to forfeit the 100,000 shares he was entitled to acquire under the terms of the stock option, which was scheduled to vest on a monthly basis over a two year period.
2004 Stock Incentive Plan, Restricted Stock Agreement and Restricted Stock Unit Awards
Under the terms both of the Amended and Restated 2004 Stock Incentive Plan and the 2004 Stock Incentive Plan, all unvested awards accelerate and immediately vest upon the occurrence of a Change in Control for all grantees. Further, Mr. Crossman's Restricted Stock Agreement and each RSU Award contains certain provisions regarding the terms and conditions of the grant. Each vests upon the earliest to occur of the participant's Death, Disability (each as defined in the Plan), or separation from service by us without Just Cause (as defined below). Upon a separation from service for any other reason (including, without limitation, termination by us for Just Cause or by participant for any reason) prior to the date that participant becomes 100 percent vested in the award, the unvested units or shares are forfeited immediately. Under the award agreements, "Just Cause" means (1)(a) a conviction for, or a plea of guilty or nolo contendere to, a felony or any other crime which involves fraud, dishonesty or moral turpitude, or (2)(b) a material breach of any written employment policies or rules, including the our Code of Business Conduct and Ethics.
Potential Payments Upon Termination or Change in Control
The following table reflects the amounts that would be paid if a change in control or other termination event occurred on November 30, 20102013 and our stock price per share was the closing market
price as of that date. The closing market price per share of our common stock on November 30, 20102013 was $1.59.$1.20.
Termination Scenario (11/30/13) | Marc Crossman | Hamish Sandhu | Joseph Dahan | Peter Kim | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Without Cause or for Good Reason(1)(2) | |||||||||||||
(within 18 months following Change in Control) | |||||||||||||
Severance pay(1)(a)(2)(a) | $ | 926,000 | $ | — | $ | 317,000 | $ | — | |||||
Health benefits continuation(1)(b)(2)(b) | 36,000 | — | 18,000 | — | |||||||||
Unvested restricted stock or RSUs(4) | 1,145,758 | 329,924 | 785,443 | — | |||||||||
| | | | | | | | | | | | | | |
Total | $ | 2,107,758 | $ | 329,924 | $ | 1,120,443 | $ | — | |||||
Without Cause or for Good Reason(1)(2)(3) | |||||||||||||
(no Change in Control) | |||||||||||||
Severance pay(1)(a)(2)(a)(3)(a) | $ | 926,000 | $ | — | $ | 317,000 | $ | 500,000 | |||||
Health benefits continuation(1)(b)(2)(b)(3)(b) | 36,000 | — | 18,000 | 18,000 | |||||||||
Unvested restricted stock or RSUs(4) | 1,145,758 | 329,924 | 785,443 | — | |||||||||
| | | | | | | | | | | | | | |
Total | $ | 2,107,758 | $ | 329,924 | $ | 1,120,443 | $ | 518,000 | |||||
Change in Control—assuming no termination | |||||||||||||
Severance pay | $ | — | $ | — | $ | — | $ | — | |||||
Unvested restricted stock or RSUs(4) | 1,145,758 | 249,938 | 785,443 | — | |||||||||
| | | | | | | | | | | | | | |
Total | $ | 1,145,758 | $ | 249,938 | $ | 785,443 | $ | — | |||||
Without Just Cause, Death or Disability | |||||||||||||
Unvested restricted stock or RSUs(4) | $ | 1,145,758 | $ | 249,938 | $ | 785,443 | $ | — | |||||
| | | | | | | | | | | | | | |
Total | $ | 1,145,758 | $ | 249,938 | $ | 785,443 | $ | — | |||||
Termination Scenario (11/30/10) | Marc Crossman | Hamish Sandhu | Joseph Dahan | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
Without Cause or for Good Reason(1)(2)(3) (within 18 months following Change in Control) | ||||||||||||
Severance pay(a) | $ | 1,561,000 | $ | 127,500 | $ | 394,000 | ||||||
Health benefits continuation(b) | 31,000 | — | 31,000 | |||||||||
Unvested restricted stock or RSUs(4) | 1,064,000 | 424,000 | 1,176,000 | |||||||||
Total | $ | 2,656,000 | $ | 551,500 | $ | 1,601,000 | ||||||
Without Cause or for Good Reason(1)(2) (no Change in Control) | ||||||||||||
Severance pay(a) | $ | 1,561,000 | $ | — | $ | 394,000 | ||||||
Health benefits continuation(b) | 31,000 | — | 31,000 | |||||||||
Unvested restricted stock or RSUs(4) | 1,064,000 | 424,000 | 1,176,000 | |||||||||
Total | $ | 2,656,000 | $ | 424,000 | $ | 1,601,000 | ||||||
Change in Control—assuming no termination | ||||||||||||
Severance pay | $ | — | $ | — | $ | — | ||||||
Unvested restricted stock or RSUs(4) | 1,064,000 | 424,000 | 1,176,000 | |||||||||
Total | $ | 1,064,000 | $ | 424,000 | $ | 1,176,000 | ||||||
Without Just Cause, Death or Disability | ||||||||||||
Unvested restricted stock or RSUs(4) | $ | 1,064,000 | $ | 424,000 | $ | 1,176,000 | ||||||
Total | $ | 1,064,000 | $ | 424,000 | $ | 1,176,000 | ||||||
In accordance with the written charter of the Audit Committee, which was adopted by our Board of Directors on May 22, 2003,November 21, 2013, the Audit Committee assists the Board of Directors in oversight of the quality and integrity of our accounting, auditing, and financial reporting practices. In addition, the Audit Committee recommends to the full Board of Directors the selection of the independent auditors.
Currently, all Audit Committee members are "independent" under NASDAQ listing standards and as such term is defined in the rules and regulations of the SEC and Mr. RizviSavage has also been designated to be an "audit committee financial expert" as such term is defined in the rules and regulations of the SEC.
In performing its oversight function, the Audit Committee reviewed and discussed our audited consolidated financial statements as of and for the year ended November 30, 20102013 with management and our independent auditors. The Audit Committee also discussed with our independent auditors all matters required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, "Communication with Audit Committees" as amended, and(Codification of Statement of Auditing Standards, AU 380) as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T, and, with and without management present, discussed and reviewed the results of the independent auditors' examination of the financial statements.
The Audit Committee obtained from the independent auditors a formal written statement describing all relationships between the independent auditors and us that might bear on the independent auditors' independence consistent with PCAOB Rule 3520. The Audit Committee discussed with the independent auditors any relationships that may have an impact on their objectivity and independence and satisfied itself that the non-audit services provided by the independent accountants are compatible with maintaining their independence.
Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that our audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended November 30, 20102013 for filing with the SEC.
The Audit Committee:
Kent Savage, Chairman of the Audit CommitteeSuhail R. RizviSam FurrowTom O'RiordanKelly Hoffman
Our Audit Committee charter provides that that all transactions between us and persons or entities affiliated with our officers, directors or principal common stockholders must be approved by our Audit Committee. We believe that this policy requiring that any material transaction between us and such related parties be approved by our Audit Committee ensures that such transactions are on terms no less favorable to us than reasonably could have been obtained in arms' length transactions with independent third parties.
Our Audit Committee charter provides that that all transactions between us and persons or entities affiliated with our officers, directors or principal common stockholders must be approved by our Audit Committee. We believe that this policy requiring that any material transaction between us and such related parties be approved by our Audit Committee ensures that such transactions are on terms no less favorable to us than reasonably could have been obtained in arms' length transactions with independent third parties. For fiscal 2010,2013, our related party transactions, all of which were previously approved by our Audit Committee, are described below.
Joe Dahan
As part Since the acquisition of the consideration paidJoe's® brand as a result of a merger in connection with the merger,October 2007 through February 18, 2013, Mr. Dahan iswas entitled to a certain percentage of theour gross profit earned by us in any applicable fiscal year until October 2017. Mr. Dahan will be entitledAt the time of the acquisition, pursuant to ASC 805—Business Combinations, we assessed this original contingent consideration arrangement as compensatory and expensed such amounts over the term of the earn out period at the defined percentage amounts. For the fiscal years ended 2013, 2012 and 2011, expenses of $311,000, $1,862,000 and $1,757,000, respectively, were recorded in the statement of net (loss) income and comprehensive (loss) income related to the following: (1) 11.33 percent of the gross profit from $11,251,000 to $22,500,000; (2) 3 percent of the gross profit from $22,501,000 to $31,500,000; (3) 2 percent of the gross profit from $31,501,000 to $40,500,000; and (4) 1 percent of the gross profit above $40,501,000.
For fiscal 2010, 2009 and 2008, payments of $1,785,000, $1,672,000 and $1,723,000, respectively, werecontingent consideration expense made to Mr. Dahan under the original agreement.
On February 18, 2013, we entered into a new agreement with Mr. Dahan that fixed the overall amount to be paid by us for the remaining months of year six through year 10 in the original merger agreement at $9,168,000 through weekly installment payments beginning on February 22, 2013 until November 27, 2015. In the first quarter of fiscal 2013, we recorded a charge of $8,732,000 as contingent consideration buy-out expense in connection with this agreement. This amount represented the net present value of the total fixed amount that Mr. Dahan would receive. The entire amount was expensed during the first quarter of fiscal 2013 as the amount payable represented a present obligation due to Mr. Dahan. On September 30, 2013, in connection with entry into new credit facilities relating to the acquisition of Hudson, Mr. Dahan, CIT, Garrison and all of our loan parties entered into an earn out subordination agreement, which provides, among other things, that any payment, whether in cash, in kind, securities or any other property, in connection with the our obligations to Mr. Dahan is expressly junior and subordinated in right of payment to all amounts due and owing upon any indebtedness outstanding under the revolving credit facility and the term loan facility. We are permitted to make certain amount of weekly installment payments of our obligations in the absence of an insolvency proceeding or any event of default under the revolving credit agreement or the term loan credit agreement.
VictorAmbre Dahan
VictorIn January 2013, we entered in to a consulting arrangement with Ambre Dahan, brotherthe spouse of Mr. Joe Dahan, for design director services that pays her $175,000 per annum on a bi-weekly basis. For the fiscal year ended 2013, we paid Ms. Dahan $155,000 under this arrangement. This arrangement may be terminated at any time by the parties. Mr. Dahan is the managing member of Shipson LLC, or Shipson,not a party to this arrangement, and Joe's previously outsourced its E-shop on the Joe's Jeans websitewe do not consider this arrangement material to his company. Joe's ceased doing business with Shipson in February 2008. As of the termination date of the relationship, Shipson owed Joe's approximately $192,000, for outstanding purchase orders that were fully reserved for in Joe's year end financial statements for fiscal 2008. During May 2009, Shipson returned $51,000 in goods and agreed to pay $141,000 for the outstanding purchase orders pursuant to a settlement agreement.us.
Albert Dahan
In April 2009, Joe'swe entered into a commission-based sales agreement with Albert Dahan, brother of Joe Dahan, for the sale of itsour products into the off-price channels of distribution. Under the agreement, Mr. Albert Dahan is entitled to a commission for purchase orders entered into by Joe'sus where he acts as a sales person for Joe's.person. The agreement may be terminated at any time for any reason or no reason
with or without notice. For the fiscal 2010, 2009years ended 2013, 2012 and 2008,2011, payments of $719,000, $413,000$453,000, $573,000 and $0,$580,000, respectively, were made to Mr. Albert Dahan under this arrangement.
Effective as of June 1, 2009, Joe'sIn October 2011, we entered into a licensean agreement with Ever Blue LLC, or Ever Blue, an entity for which Albert Dahan is the sole member, for the licensesale of the children's product line with Kids Jeans LLC, or Kids LLC, an entity which Mr. Albert Dahan holds an interest where he has voting control over the entity. Under the terms of the license, Kids LLCproducts. Ever Blue has an exclusive right to produce, distribute and sell children's products bearing the Joe's® brand on a worldwide basis, subject to certain limitations on the channels of distribution. In exchange for the license, Kids LLC will payEver Blue pays to Joe'sus a royalty payment of 20 percent on the first $5,000,000 in net sales and 10 percent thereafter. The initial term of the agreement is for three years until June 30, 2012 and is subject towith certain guaranteed minimum net sales and royalty payment requirements during thefor each term. In connection with this agreement, we provided initial term andfunding to Ever Blue for renewal. Kids LLC advanced $1,000,000 as a payment against the first year's guaranteed minimum royalties. Thisinventory purchases, which such amount has been reflected underrepaid in full. For the caption of "Deferred Licensing Revenue" on the Condensed Consolidated Balance Sheets in our Annual Report. Joe's expects to recognize the royalty revenue based upon a percentage as set forth in the agreement of the licensees actual net sales or minimum net sales, whichever is greater. Payments received in consideration of the grant of the license or advanced royalty payments arefiscal years ended 2013, 2012 and 2011, we recognized ratably as revenue over the term of the license agreement. The revenue recognized ratably over the term of the license agreement will not exceed royalty payments received. The unrecognized portion of the upfront payments are included in deferred
royalties and accrued expenses depending on the long or short term nature of the payments to be recognized. For fiscal 2010, 2009 and 2008, advanced payments of $610,000, $450,000$612,000, $296,000 and $0, respectively in royalty income under the license agreement.
Peter Kim
We have been recognizedentered into several agreements, including a stock purchase agreement, a convertible note, the Registration Rights Agreement, an employment agreement and a non-competition agreement with Peter Kim in connection with the acquisition of Hudson. Mr. Kim was not a related person as income.defined in Item 404 of Regulation S-K prior to closing of the Acquisition. Pursuant to the terms of the stock purchase agreement, Mr. Kim received approximately $0.5 million in cash and approximately $14.2 million aggregate principal of Management Notes as consideration for his equity interests in Hudson. In addition, Mr. Kim received approximately $2.1 million in cash as consideration for debts owed to him by Hudson. See our Annual Report on Form 10-K for the year ended November 30, 2013—"Notes to Consolidated Financial Statements—Note 3—Acquisition of Hudson" and "Note 8—Debt" for a further discussion of those agreements. In addition, a description of the Management Notes and the Registration Rights Agreement is included above in "Questions and Answers about the Proxy Materials and the Annual Meeting" under the question "What are the terms of the Buyer Notes?" and a description of Mr. Kim's employment agreement and non-competition agreement are included above under the heading "Employment Contracts and Termination of Employment and Change in Control Arrangements."
Tony Kim
In May 2011 and January 2013, our Hudson subsidiary entered into two distributorship agreements with Telos Group L.L.C., an entity that is owned or controlled by Peter Kim's brother, Tony Kim, for distribution of Hudson's products in South Korea and China. Under these agreements, Tony Kim has purchased $9,000 in product from us in from September 30, 2013 until the end of fiscal 2013.
Director Independence
Currently, the following members of our Board of Directors are considered "independent" under NASDAQ listing standards and as such term is defined in the rules and regulations of the SEC:
In making its determination that the foregoing directors are independent, the Board of Directors considered all relevant facts and circumstances. The Board considered theThere are no current transactions with variousmembers of the Board members and concludedof Directors that they do not haveneeded to be considered for any impact on the respective member's independence. We do not have any past or present members serving on our Audit Committee,
Compensation Committee and Nominating and Governance Committee that are not considered to be independent.independent based on the applicable rules of NASDAQ and the SEC.
Equity Compensation Plan Information
The following table sets forth certain information about our common stock that may be issued upon the exercise of options, warrants and rights under all of the our compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance as of November 30, 2010,2013, which includes our Amended and Restated 2004 Stock Incentive Plan and our 2000 Director2004 Stock Incentive Plan. We stopped granting options under our 2000 Director2004 Stock Incentive Plan after the adoption and approval of our Amended and Restated 2004 Stock Incentive Plan on June 3, 2004. If our Restated Stock Plan is approved by our stockholders, we will stop granting options under our 2004 Stock Plan.October 26, 2011.
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)) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | (c) | |||||||
Equity compensation plans approved by security holders(1) | ||||||||||
Amended and Restated Stock Incentive Plan | — | $ | — | 3,544,756 | ||||||
2004 Incentive Plan | 775,000 | $ | 4.03 | N/A | (2) | |||||
| | | | | | | | | | | |
| 775,000 | $ | 4.03 | 3,544,756 | |||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
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)) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | (c) | ||||||||
Equity compensation plans approved by security holders(1) | |||||||||||
2004 Incentive Plan | 775,000 | $ | 4.03 | 3,748,191 | |||||||
2000 Director Plan | 93,290 | $ | 1.16 | N/A | (2) | ||||||
| 868,290 | $ | 3.73 | 3,748,191 | ||||||||
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, officers and persons who beneficially own more than ten percent of a registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership with the SEC on a timely basis. Directors, officers and greater than ten percent beneficial owners are required by the SEC's regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of copies of such forms furnished to us and certain of our internal records, or upon written representations from officers, directors and greater than ten percent beneficial owners that no Form 5 was required, we believe that during the fiscal year ended November 30, 2010,2013, all Section 16(a) filing requirements applicable to our directors, officers and greater than ten percent beneficial owners were satisfied on a timely basis, except as follows: one Form 4 for Sam Furrow relating to one individual sale transaction that was not timely filed and two Forms 4 for Tom O'Riordan relating to six individual sale transactions that were not timely filed.basis.
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the fiscal years ended November 30, 20102013 and 2009,2012, Ernst &Young LLP, or E&Y, billed the approximate fees as described below.
Audit Fees
Fees for audit services totaled approximately $430,000$600,000 for the year ended November 30, 20102013 and $532,000$433,000 for the year ended November 30, 2009,2012 , including fees associated with the annual audit and reviews of our quarterly reports on Form 10-Q and assistance with and reviewfor fiscal 2013, included the additional scope of registration statements filed withwork due to the SEC including consents and comfort letters related to registration statements for equity issuances andacquisition of Hudson as our stock incentive plan.subsidiary.
Audit-Related Fees
Fees for audit-related services totaled approximately $354,000 for the year ended November 30, 2013 and included fees associated with the acquisition of Hudson as our subsidiary. There were no fees for audit-related services for the yearsyear ended November 30, 2010 and 2009.2012.
Tax Fees
Fees for tax services, including tax compliance and return preparation, tax advice, and tax planning and tax matters related to the acquisition of Hudson as our subsidiary, totaled approximately $100,000$464,000 for the year ended November 30, 20102013 and $148,000$70,000 for the year ended November 30, 2009.2012.
All Other Fees
There were no other fees for the years ended November 30, 20102013 and November 30, 2009.2012.
The Audit Committee has adopted a policy which requires the Audit Committee's pre-approval of audit and non-audit services performed by the independent auditor to assure that the provision of such services does not impair the auditor's independence. The Audit Committee approves such services on an on-going basis prior to the incurrence of any such audit and non-audit services. The Audit Committee pre-approved all of the audit and non-audit services rendered by E&Y listed above.
The Audit Committee has determined that the services provided by E&Y were compatible with maintaining E&Y's independence.
OTHER BUSINESS TO BE TRANSACTED
As of the date of this proxy statement, the Board of Directors knows of no other business which may come before the annual meeting. If any other business is properly brought before the annual meeting, it is the intention of the proxy holders to vote or act in accordance with their best judgment with respect to such matters.
The SEC allows us to "incorporate by reference" into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC as specified below will update and supersede that information. Except to the extent that information is deemed furnished and not filed pursuant to securities laws and regulations, we incorporate by reference the following filings which are also being mailed with this proxy statement to stockholders of record and beneficial owners:
We will provide to each person, including any beneficial owner, to whom a proxy statement is delivered, upon written or oral request and without charge, a copy of the documents referred to above that we have incorporated by reference and the definitive agreements that we have filed as exhibits to various SEC filings, as well as certain agreements that we entered into in connection with the transactions discussed in this proxy statement. Copies of our 2013 Annual Report and the Hudson Financials are being mailed with this proxy statement. You can request copies of such documents and agreements if you call or write us at the following address or telephone number:
Joe's Jeans Inc.
Attention: Corporate Secretary
2340 South Eastern Avenue
Commerce, California 90040
(323) 837-3700
JOE'S JEANS INC.
AMENDED AND RESTATED
2004 STOCK INCENTIVE PLAN*PLAN
1. Purpose. The purpose of the Joe's Jeans Inc. Amended and Restated 2004 Stock Incentive Plan (the "Plan") is to enhance the ability of Joe's Jeans Inc. (the "Company") and its Subsidiaries and Affiliates to attract and retain officers, employees, directors and consultants of outstanding ability and to provide selected officers, employees, directors and consultants with an interest in the Company parallel to that of the Company's shareholders. The term "Company" as used in this Plan with reference to employment shall include the Company and its Subsidiaries and Affiliates, as appropriate.
2. Definitions.
(a) "Affiliate" means any parent or subsidiary of the Company; provided, that, with respect to Incentive Stock Options, the term shall only mean "parent corporation" and "subsidiary corporation" as defined in Sections 424(e) and 424(f) of the Code and further, provided, that, with respect to any "stock right" within the meaning of Section 409A of the Code, such affiliate must qualify as a "service recipient" within the meaning of Section 409A of the Code and in applying Section 1563(a)(1), (2) and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, the language "at least 50 percent" is used instead of "at least 80 percent".
(b) "409A Award" means an Award that is considered "nonqualified deferred compensation" within the meaning of Section 409A of the Code and Section 13 of this Plan.
(c) "Award" shall mean an award determined in accordance with the terms of the Plan, including, without limitation, Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Compensation Awards, and share awards.
(d) "Award Agreement" shall have the meaning set forth in Section 20 hereof.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Cause" shall mean (i) if a Participant is party to an employment agreement or similar agreement with the Company and such agreement includes a definition of Cause, the definition contained therein or (ii) if no such employment or similar agreement exists, it shall mean (A) the Participant's failure to perform the duties reasonably assigned to him or her by the Company, (B) a good faith finding by the Company of the Participant's dishonesty, gross negligence or misconduct, (C) a material breach by the Participant of any written Company employment policies or rules or (D) the Participant's conviction for, or his or her plea of guilty or nolo contendere to, a felony or for any other crime which involves fraud, dishonesty or moral turpitude.
(g) "Change in Control" of the Company means the occurrence of one of the following events
(i) individuals who, on the Effective Date, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to
directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director;
(ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities, or (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii));
(iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) 60% or more of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) Stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially
owned, directly or indirectly, by the Company's shareholders in substantially the same proportions as such shareholders owned the Company's outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan.
Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 50% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the
percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(i) "Committee" shall mean a committee of at least two members of the Board appointed by the Board to administer the Plan and to perform the functions set forth herein and who are (i) "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"), (ii) "outside directors" within the meaning of Section 162(m) of the Code and (iii) "independent directors" within the meaning of Rule 5605(a)(2) of the Nasdaq Stock Market Rules.
(j) "Common Stock" shall mean the common stock of the Company.
(k) "Continuous Service" means that the Participant's service as an employee, director or consultant with the Company or a Subsidiary which is not interrupted or terminated. The Participant's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or a Subsidiary as an employee, director or consultant or a change in the entity for which the Participant renders such service; provided, that, there is no interruption or termination of the Participant's Continuous Service other than an approved leave of absence. The Committee, in its sole discretion, may determine whether Continuous Service shall be considered interrupted.
(l) "Covered Employee" shall have the meaning set forth in Section 162(m)(3) of the Code.
(m) "Date of Grant" means the date on which the Committee adopts a resolution, or takes other appropriate action, expressly granting an Award to a Participant that specifies the key terms and conditions of the Award and from which the Participant begins to benefit from or be adversely affected by subsequent changes in the Fair Market Value of the Common Stock, or if a later date in set forth in such resolution, then such date as is set forth in such resolution.
(n) "Disability" means that (i) the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or (ii) the Participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under and accident and health plan covering employees of the Company;provided,however, for purposes of any Incentive Stock Option, the term Disability shall have the meaning ascribed to it under Code Section 22(e)(3).
(o) "Fair Market Value" shall mean, as of any date, the value per share of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market
of The Nasdaq Stock Market, the Fair Market Value per share shall be the closing sales price for such share as quoted on such exchange or system for such date, or if no sales price was reported for such date, the closing sales price for the trading day immediately preceding such date, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or
(ii) In the absence of an established market for the Common Stock, the Fair Market Value per share thereof shall be determined in good faith by the Committee in accordance with the requirements of Section 409A of the Code.
(p) "Immediate Family Member" shall mean, except as otherwise determined by the Committee, a Participant's spouse, ancestors and descendants.
(q) "Incentive Stock Option" shall mean a stock option which is intended to meet the requirements of Section 422 of the Code.
(r) "Negative Discretion" means the discretion authorized by the Plan to be applied by the Administrator to eliminate or reduce the size of a Performance Compensation Award in accordance with Section 9(d)(iv) of the Plan; provided, that, the exercise of such discretion would not cause the Performance Compensation Award to fail to qualify as "performance-based compensation" under Section 162(m) of the Code.
(s) "Nonqualified Stock Option" shall mean a stock option which is not intended to be an Incentive Stock Option.
(t) "Option" shall mean either an Incentive Stock Option or a Nonqualified Stock Option.
(u) "Participant" shall mean an officer, employee, director or consultant of the Company or its Subsidiaries who is selected to participate in the Plan in accordance with Section 5.
(v) "Performance Compensation Award" shall mean an Award granted pursuant to the terms and conditions set forth in Section 9 of the Plan.
(w) "Performance Goals" shall mean or may be expressed in terms of any of the following business criteria: revenue, earnings before interest, taxes, depreciation and amortization ("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). 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. Unless otherwise determined by the Committee by no later than the earlier of the date that is ninety days after the commencement of the Performance Period or the day prior to the date on which twenty-five percent of the Performance Period has elapsed, the Performance Goals will be determined by not accounting for a change in U.S. generally accepted accounting principles during a Performance Period.
(x) "Performance Objective" shall mean the level or levels of performance required to be attained with respect to specified Performance Goals in order that a Participant shall become entitled to specified rights in connection with a Performance Compensation Award.
(y) "Performance Period" shall mean the one or more periods of time, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for purposes of determining a Participant's right to and the payment of a Performance Compensation Award.
(z) "Restricted Stock" shall have the meaning set forth in Section 8 of the Plan.
(aa) "Restricted Stock Units" shall have the meaning set forth in 8 of the Plan.
(bb) "Stock Appreciation Rights" shall have the meaning set forth in Section 11 of the Plan.
(cc) "Subsidiary" shall mean any Affiliate of the Company selected by the Board; provided, that, with respect to Incentive Stock Options, it shall mean any subsidiary of the Company that is a corporation and which at the time qualifies as a "subsidiary corporation" within the meaning of Section 424(f) of the Code.
3. Shares Subject to the Plan. Subject to adjustment in accordance with Section 19, the total of the number of shares of Common Stock which shall be available for the grant of Awards under the Plan shall not exceed 6,825,000(1)11,825,000(1) shares of Common Stock; provided, that, for purposes of this limitation, any Common Stock subject to an Option which is canceled or expires without exercise 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 Section 19, no Participant shall be granted, during any one (1) year period, Options to purchase more than 1,250,000 shares of Common Stock and, the number of shares of Common Stock subject to any Awards other than Options or Stock Appreciation Rights shall not exceed 1,250,000 shares of Common Stock. Common Stock available for issue or distribution under the Plan shall be authorized and unissued shares or shares reacquired by the Company in any manner. All shares of Common Stock reserved for issuance under the Plan may be used for Incentive Stock Options.
4. Administration.Administration.
(a) The Plan shall be administered by the Committee. All references to the Committee hereinafter shall mean the Board if no such Committee has been appointed. Notwithstanding the foregoing, the Board or Committee may (i) delegate to a committee of one or more members of the Board who are not "outside directors" within the meaning of Section 162(m) of the Code the authority to grant Awards to eligible persons who are either (A) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Award or (B) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code or (ii) delegate to a committee of one or more members of the Board who are not "non-employee directors" within the meaning of Rule 16b-3 the authority to grant Awards to eligible persons who are not subject to Section 16 of the Exchange Act.
(b) The Committee shall (i) approve the selection of Participants, (ii) determine the type of Awards to be made to Participants, (iii) determine the number of shares of Common Stock subject to Awards, (iv) determine the terms and conditions of any Award granted hereunder (including, but not limited to, any restriction and forfeiture conditions on such Award) and (v) have 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 hereunder, 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.
(c) Any action of the Committee shall be final, conclusive and binding on all persons, including the Company and its Subsidiaries and shareholders, Participants and persons claiming rights from or through a Participant.
(d) The Committee may delegate to officers or employees of the Company or any Subsidiary, and to service providers, the authority, subject to such terms as the Committee shall determine, to perform administrative functions with respect to the Plan and Award Agreements.
(e) Members of the Committee and any officer or employee of the Company or any Subsidiary acting at the direction of, or on behalf of, the Committee shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent
permitted by law, be fully indemnified by the Company with respect to any such action or determination.
5. Eligibility. Individuals eligible to receive Awards under the Plan shall be the offices, employees, directors and consultants of the Company and its Subsidiaries selected by the Committee;provided, that, only employees of the Company and its Subsidiaries may be granted Incentive Stock Options.
6. Awards. Awards under the Plan may consist of Options, Restricted Stock, Restricted Stock Units, Performance Compensation Awards, share awards, Stock Appreciation Rights or other awards based on the value of the Common Stock. Incentive Stock Options may only be granted to employees of the Company and its Subsidiaries. Awards shall be subject to the terms and conditions of the Plan and shall be evidenced by an Award Agreement containing such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable.
7. Options. Options may be granted under the Plan in such form as the Committee may from time to time approve pursuant to terms set forth in an Option agreement.
(a) Types of Options. Each Option agreement shall state whether or not the Option will be treated as an Incentive Stock Option or Nonqualified Stock Option. The aggregate Fair Market Value of the Common Stock for which Incentive Stock Options granted to any one employee under this Plan or any other incentive stock option plan of the Company or of any of its Subsidiaries may by their terms first become exercisable during any calendar year shall not exceed $100,000, determining Fair Market Value as of the Date of Grant of each respective Option. In the event such threshold is exceeded in any calendar year, such excess Options shall be automatically deemed to be Nonqualified Stock Options. To the extent that any Option granted under this Plan which is intended to be an Incentive Stock Option fails for any reason to qualify as such at any time, such Option shall be a Nonqualified Stock Option. Notwithstanding any of the foregoing to the contrary, the Company shall have no liability to any Participant or any other person is an Option designated as an Incentive Stock Option fails to qualify as such at any time or if an Option is determined to constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code and the terms of such Option do not satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code and Section 13 of the Plan.
(b) Option Price. The purchase price per share of the Common Stock purchasable under an Option shall be determined by the Committee; provided, however, the exercise price for Incentive Stock Options will be not less than 100% of the Fair Market Value of the Common Stock on the Date of Grant and in the case of Incentive Stock Options 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 (a "10% Shareholder") the price per share specified in the agreement relating to such Option shall not be less than 110% of the Fair Market Value per share of the Common Stock on the Date of Grant. Notwithstanding any other provision in this Plan to the contrary, the Committee may reduce the option price of any outstanding Option either through a direct amendment to such Option or through a cancellation of such Option and immediate grant of a new Option with a lower option price or in any other manner it deems appropriate.
(c) Option Period. The term of each Option shall be fixed by the Committee, but no Option shall be exercisable after the expiration of ten (10) years from the Date of Grant of the Option; provided, that, in the case of Incentive Stock Options granted to 10% Shareholders, the term of such Option shall not exceed 5 years from the Date of Grant. Notwithstanding the foregoing, unless otherwise provided in an Award Agreement, upon the death of a Participant, Options (other than Incentive Stock Options) that would otherwise remain exercisable following such death, shall remain exercisable for one year following such death, notwithstanding the term of such Option.
(d) Exercisability. Each Option shall vest and become exercisable at a rate determined by the Committee on the Date of Grant.
(e) 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 the Company specifying the number shares of Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the Option exercise price. The exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of 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 the Company, where such Common Stock has a Fair Market Value equal to the aggregate exercise price of the Option at the time of exercise, (iii) if established by the Company, through a "same day sale" commitment from optionee and a broker-dealer that is acceptable to the Company that is a member of the National Association of Securities Dealers (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 the Company, (iv) through additional methods prescribed by the Committee, all under such terms and conditions as deemed appropriate by the Committee in its discretion, or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. A Participant's subsequent transfer or disposition of any 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 this Plan. Notwithstanding any of the foregoing to the contrary, during any period for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or national market system) an exercise by a director or executive officer that involves or may involve a direct or indirect extension of credit or arrangement or an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act (codified in Section 13(k) of the Exchange Act) shall be prohibited with respect to any Award under this Plan.
(f) Additional Requirements Under Section 409A. Each Award Agreement evidencing the grant of an Option shall include a provision whereby, notwithstanding any provision of the Plan or the Award Agreement to the contrary, the Option shall satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code, in accordance with Section 13 hereof, in the event any Option under this Plan is granted with an exercise price less than Fair Market Value of the Common Stock subject to the Option on the date the Option is granted (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value, or is materially modified at a time when the Fair Market Value exceeds the exercise price), or is otherwise determined to constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code.
8.Restricted Awards.Awards.
(a) The Committee may from time to time award to eligible Participants actual shares of Common Stock ("Restricted Stock") or hypothetical Common Stock units ("Restricted Stock Units") having a value equal to the Fair Market Value of an identical number of shares of Common Stock,
which may, but need not, provide that such Restricted Stock or Restricted Stock Units may not be sold, assigned, transferred or otherwise disposed of, pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose for such period (the "Restricted Period") as the Committee shall determine. The Committee may define the Restricted Period in terms of the passage of time or in any other manner it deems appropriate. The Committee may alter or waive at any time any term or condition of Restricted Stock or Restricted Stock Units that is not mandatory under the Plan. Unless otherwise determined by the Committee, upon termination of a Participant's Continuous Service with the Company for any reason prior to the end of the Restricted
Period, any Restricted Stock or Restricted Stock Units shall be forfeited and the Participant shall have no right with respect to the Award. Except as restricted under the terms of the Plan and any Award Agreement, any Participant awarded Restricted Stock shall have all the rights of a shareholder including, without limitation, the right to vote the Restricted Stock. If a share certificate is issued in respect of the Restricted Stock, the certificate shall be registered in the name of the Participant, but shall be held by the Company for the account of the Participant until the end of the Restricted Period. Payment of Restricted Stock Units shall be made in Common Stock or in cash or in a combination thereof (based upon the Fair Market Value of the Common Stock on the day the Restricted Period expires), all as determined by the Committee in its sole discretion. No shares of Common Stock shall be issued at the time Restricted Stock Units are granted, and the Company will not be required to set aside a fund for the payment of any such Award. At the discretion of the Committee, each Restricted Stock Unit (representing one share of Common Stock) may be credited with cash and stock dividends paid by the Company in respect of one share of Common Stock ("Dividend Equivalents"). At the discretion of the Committee, Dividend Equivalents may be either currently paid to the Participant or withheld by the Company for the Participant's account, and interest may be credited on the amount of cash Dividend Equivalents withheld at a rate and subject to such terms as determined by the Committee. Dividend Equivalents credited to a Participant's account and attributable to any particular Restricted Stock Unit (and earnings thereon, if applicable) shall be distributed in cash or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such Dividend Equivalents and earnings, if applicable, to the Participant upon settlement of such Restricted Stock Unit and, if such Restricted Stock Unit is forfeited, the Participant shall have no right to such Dividends Equivalents.
(b) Delivery of Restricted Stock and Settlement of Restricted Stock Units. Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in Section 8(a) and the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his beneficiary, without charge, the stock certificate evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (to the nearest full share) and any cash dividends or stock dividends credited to the Participant's account with respect to such Restricted Stock and the interest thereon, if any. Upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his beneficiary, without charge, one share of Common Stock for each such outstanding Restricted Stock Unit ("Vested Unit") and cash equal to any Dividend Equivalents credited with respect to each such Vested Unit in accordance with section 8(a) hereof and the interest thereon or, at the discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to such Dividend Equivalents interest thereon, if any;provided,however, that, if explicitly provided in the applicable Award Agreement, the Committee may, in its sole discretion, elect to pay cash or part cash and part Common Stock in lieu of delivering only shares of Common Stock for Vested Units. If a cash payment is made in lieu of delivering shares of Common Stock, the amount of such payment shall be equal to the Fair Market Value of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Vested Unit.
9. Performance Compensation Awards.Awards.
(a) General. The Committee shall have the authority, at the time of grant of any Award described in this Plan (other than Options and Stock Appreciation Rights granted with an exercise price or grant price, as the case may be, equal to or greater than the Fair Market Value per share of Stock on the date of grant), to designate such Award as a Performance Compensation Award in order to qualify such Award as "performance-based compensation" under Section 162(m) of the Code. In addition, the Committee shall have the authority to make an award of a cash bonus to any Participant
and designate such Award as a Performance Compensation Award in order to qualify such Award as "performance-based compensation" under Section 162(m).
(b) Eligibility. The Committee will, in its sole discretion, designate within the first 90 days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code) which Participants will be eligible to receive Performance Compensation Awards in respect of such Performance Period. However, designation of a Participant eligible to receive an Award hereunder for a Performance Period shall not in any manner entitle the Participant to receive payment in respect of any Performance Compensation Award for such Performance Period. The determination as to whether or not such Participant becomes entitled to payment in respect of any Performance Compensation Award shall be decided solely in accordance with the provisions of this Section 9(b). Moreover, designation of a Participant eligible to receive an Award hereunder for a particular Performance Period shall not require designation of such Participant eligible to receive an Award hereunder in any subsequent Performance Period and designation of one person as a Participant eligible to receive an Award hereunder shall not require designation of any other person as a Participant eligible to receive an Award hereunder in such period or in any other period.
(c) Discretion of Committee with Respect to Performance Compensation Awards. With regard to a particular Performance Period, the Committee shall have full discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the performance criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goals(s) that is (are) to apply to the Company and the Performance Formula. Within the first 90 days of a Performance Period (or, if longer or shorter, within the maximum period allowed under Section 162(m) of the Code), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence of this Section 9(c) and record the same in writing.
(d) Payment of Performance Compensation Awards.Awards.
(i) Condition to Receipt of Payment. Unless otherwise provided in the applicable Award Agreement, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that: (A) the Performance Goals for such period are achieved; and (B) the Performance Formula as applied against such Performance Goals determines that all or some portion of such Participant's Performance Compensation Award has been earned for the Performance Period.
(iii) Certification. Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the actual size of each Participant's Performance
Compensation Award for the Performance Period and, in so doing, may apply Negative Discretion in accordance with Section 9(d)(iv) hereof, if and when it deems appropriate.
(iv) Use of Discretion. In determining the actual size of an individual Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of the Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion if, in its sole judgment, such reduction or elimination is appropriate. The Committee shall not have the discretion to (a) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the Performance Goals for such Performance Period have not been attained; or (b) increase a Performance Compensation Award above the maximum amount payable under Section 9(d)(vi) of the Plan.
(v) Timing of Award Payments. Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by Section 9(d)(iii).
(vi) Maximum Award Payable. Notwithstanding any provision contained in this Plan to the contrary, the maximum Performance Compensation Award payable to any one Participant under the Plan for a Performance Period is 6,825,000 shares of Common Stock or, in the event such Performance Compensation Award is paid in cash, the equivalent cash value thereof on the first or last day of the Performance Period to which such Award relates, as determined by the Committee. The maximum amount that can be paid in any calendar year to any Participant pursuant to a cash bonus Award described in the last sentence of Section 9(a) shall be $4,000,000. Furthermore, any Performance Compensation Award that has been deferred shall not (between the date as of which the Award is deferred and the payment date) increase (A) with respect to Performance Compensation Award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable rate of interest set by the Committee or (B) with respect to a Performance Compensation Award that is payable in shares of Common Stock, by an amount greater than the appreciation of a share of Common Stock from the date such Award is deferred to the payment date.
10. Share Purchases. The Committee may authorize eligible individuals to purchase Common Stock in the Company at a price equal to, below or above the Fair Market Value of the Common Stock at the time of grant. Any such offer may be subject to the conditions and terms the Committee may impose.
11. Stock Appreciation Rights. The Committee may in its discretion, either alone or in connection with the grant of another Award, grant stock appreciation rights ("Stock Appreciation Rights") in accordance with the Plan, the terms and conditions of which shall be set forth in an agreement. If granted in connection with an Option, a Stock Appreciation Right shall cover the same number of shares of Common Stock covered by the Option (or such lesser number of shares as the Committee may determine) and shall, except as provided in this Section 11, be subject to the same terms and conditions as the related Option.
(a) Time of Grant. A Stock Appreciation Right may be granted (i) at any time if unrelated to an Option, or (ii) if related to an Option, either at the time of grant, or in the case of Nonqualified Stock Options, at any time thereafter during the term of such Option.
(b) Stock Appreciation Right Related to an Option.Option.
(i) A Stock Appreciation Right granted in connection with an Option shall be exercisable at such time or times and only to the extent that the related Options are exercisable, and will not be transferable except to the extent the related Option may be transferable. A Stock Appreciation Right granted in connection with an Incentive Stock Option shall be exercisable only if the Fair
Market Value of a share of Common Stock on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option agreement.
(ii) Upon the exercise of a Stock Appreciation Right related to an Option, the Participant shall be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a share of Common Stock on the date preceding the date of exercise of such Stock Appreciation Right over the per share purchase price under the related Option, by (B) the number of shares of Common Stock as to which such Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the agreement evidencing the Stock Appreciation Right at the time it is granted.
(iii) Upon the exercise of a Stock Appreciation Right granted in connection with an Option, the Option shall be canceled to the extent of the number of shares as to which the Stock Appreciation Right is exercised, and upon the exercise of an Option granted in connection with a Stock Appreciation Right, the Stock Appreciation Right shall be canceled to the extent of the number of shares of Common Stock as to which the Option is exercised or surrendered.
(c) Stock Appreciation Right Unrelated to an Option. The Committee may grant to a Participant Stock Appreciation Rights unrelated to Options. Stock Appreciation Rights unrelated to Options shall contain such terms and conditions as to exercisability, vesting and duration as the Committee shall determine, but in no event shall they have a term of greater than ten (10) years; provided, that, unless otherwise provided in an Award Agreement, upon the death of a Participant, Stock Appreciation Rights that would otherwise remain exercisable for a period of time following such death, shall remain exercisable for one year following death notwithstanding the term of the Award. Upon exercise of a Stock Appreciation Right unrelated to an Option, the Participant shall be entitled to receive an amount determined by multiplying (i) the excess of the Fair Market Value of a share on the date preceding the date of exercise of such Stock Appreciation Right over the per share exercise price of the Stock Appreciation Right, by (ii) number of shares of Common Stock as to which the Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any Stock Appreciation Right by including such a limit in the agreement evidencing the Stock Appreciation Right at the time it is granted.
(d) Method of Exercise. Stock Appreciation Rights shall be exercised by a Participant only by a written notice delivered in person or by mail to the Company at the Company's principal executive office, specifying the number of shares of Common Stock with respect to which the Stock Appreciation Right is being exercised. If requested by the Committee, the Participant shall deliver the agreement evidencing the Stock Appreciation Right being exercised and the agreement evidencing any related Option to the Company who shall endorse thereon a notation of such exercise and return such agreement to the Participant.
(e) Form of Payment. Payment of the amount determined under this Section 11 may be made in the discretion of the Committee solely in whole shares of Common Stock in a number determined at their Fair Market Value on the date preceding the date of exercise of the Stock Appreciation Right, or solely in cash, or in a combination of cash and shares. If the Committee decides to make full payment in shares in Common Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash.
(f) Additional Requirements under Section 409A. A Stock Appreciation Right that provides for the deferral of compensation within the meaning of Section 409A of the Code shall satisfy the requirements of this Section 11(f) and the additional conditions applicable to nonqualified deferred compensation under Section 409A of the Code, in accordance with Section 13 hereof. The requirements herein shall apply in the event any Stock Appreciation Right under this Plan is granted with an exercise price less than Fair Market Value of the Common Stock underlying the Award on the
date the Stock Appreciation Right is granted (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value, or is materially modified at a time when the Fair Market Value exceeds the exercise price), provides that it is settled in cash, or is otherwise determined to constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code. Any such Stock Appreciation Right may provide that it is exercisable at any time permitted under the governing written instrument, but such exercise shall be limited to fixing the measurement of the amount, if any, by which the Fair Market Value of a share of Common Stock on the date of exercise exceeds the exercise price (the "SAR Amount"). However, once the Stock Appreciation Right is exercised, the SAR Amount may only be paid on the fixed time, payment schedule or other event specified in the governing written instrument or in Section 13(a) hereof.
12. Share Awards. Subject to such performance and employment conditions as the Committee may determine, awards of Common Stock or awards based on the value of the Common Stock may be granted either alone or in addition to other Awards granted under the Plan. Any Awards under this Section 12 and any Common Stock covered by any such Award may be forfeited to the extent so provided in the Award Agreement, as determined by the Committee. Payment of Common Stock awards made under this Section 12 which are based on the value of Common Stock may be made in Common Stock or in cash or in a combination thereof (based upon the Fair Market Value of the Common Stock on the date of payment), all as determined by the Committee in its sole discretion.
13. Additional Conditions Applicable to Nonqualified Deferred Compensation Under Section 409A of the Code. In the event any Award under this Plan is granted with an exercise price less than Fair Market Value of the Common Stock subject to the Award on the Date of Grant (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value, or such Award is materially modified and deemed a new Award at a time when the Fair Market Value exceeds the exercise price), or is otherwise determined to constitute a 409A Award, the following additional conditions shall apply and shall supersede any contrary provisions of this Plan or the terms of any 409A Award agreement.
(a) Exercise and Distribution. No 409A Award shall be exercisable or distributable earlier than upon one of the following:
(i) Specified Time. A specified time or a fixed schedule set forth in the written instrument evidencing the 409A Award, but not later than after the expiration of 10 years from the Date of Grant. If the written grant instrument does not specify a fixed time or schedule, such time shall be the date that is the fifth anniversary of the Date of Grant.
(ii) Separation from Service. Separation from service (within the meaning of Section 409A of the Code) by the 409A Award recipient;provided, however, if the 409A Award recipient is a "key employee" (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company's stock is publicly traded on an established securities market or otherwise, exercise or distribution under this Section 13(a)(ii) may not be made before the date which is six months after the date of separation from service.
(iii) Death. The date of death of the 409A Award recipient.
(iv) Disability. The date the 409A Award recipient becomes disabled (within the meaning of Section 13(d)(ii) hereof).
(v) Unforeseeable Emergency. The occurrence of an unforeseeable emergency (within the meaning of Section 13(d)(iii) hereof), but only if the net value (after payment of the exercise price) of the number of shares of Common Stock that become issuable does not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the exercise, after taking into account the extent to which the emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by
liquidation of the Participant's other assets (to the extent such liquidation would not itself cause severe financial hardship).
(vi) Change in Control Event. The occurrence of a Change in Control Event (within the meaning of Section 13(d)(i) hereof), including the Company's discretionary exercise of the right to accelerate vesting of such Award upon a Change in Control Event or to terminate the Plan or any 409A Award granted hereunder within twelve (12) months of the Change in Control Event.
(b) Term. Notwithstanding anything to the contrary in this Plan or the terms of any Award Agreement in respect of a 409A Award, the term of any 409A Award shall expire and such Award shall no longer be exercisable on the date that is the later of: (i) 2-1/21/2 months after the end of the
Company's taxable year in which the 409A Award first becomes exercisable or distributable pursuant to this Section 13 and is not subject to a substantial risk of forfeiture; or (ii) 2-1/21/2 months after the end of the 409A Award recipient's taxable year in which the 409A Award first becomes exercisable or distributable pursuant to this Section 13 and is not subject to a substantial risk of forfeiture, but not later than the earlier of (x) the expiration of 10 years from the date the 409A Award was granted, or (y) the term specified in the 409A Award agreement.
(c) No Acceleration. A 409A Award may not be accelerated or exercised prior to the time specified in this Section 13, except in the case of one of the following events:
(i) Domestic Relations Order. The 409A Award may permit the acceleration of the exercise or distribution time or schedule to an individual other than the Participant as may be necessary to comply with the terms of a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).
(ii) Change in Control Event. The Committee may exercise the discretionary right to accelerate the vesting of such 409A Award upon a Change in Control Event or to terminate the Plan or any 409A Award granted thereunder within 12 months of the Change in Control Event and cancel the 409A Award for compensation. In addition, the Committee may exercise the discretionary right to accelerate the vesting of such 409A Award provided that such acceleration does not change the time or schedule of payment of such Award and otherwise satisfies the requirements of this Section 13 and the requirements of Section 409A of the Code.
(d) Definitions. Solely for purposes of this Section 13 and not for other purposes of the Plan, the following terms shall be defined as set forth below:
(i) "Change in Control Event" means the occurrence of a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company (within the meaning of Treasury Regulation Section 1.409A-3(i)(5).
(ii) "Disabled" means a Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering Employees.
(iii) "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant's spouse, or a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
14. Change in Control. Unless otherwise provided in an Award Agreement, upon the occurrence of a Change in Control, all Options and Stock Appreciation Rights shall automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any Common Stock awards, Restricted Stock, Restricted Stock Units, or Performance Compensation Awards granted hereunder shall automatically lapse. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company.
15. Withholding. Upon (a) disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option granted pursuant to the Plan within two years of the grant of the
Incentive Stock Option or within one year after exercise of the Incentive Stock Option, or (b) exercise of a Nonqualified Stock Option (or an Incentive Stock Option treated as a Nonqualified Stock Option), exercise of a stock appreciation right or the vesting or payment of any other Award under the Plan, or (c) under any other circumstances determined by the Committee in its sole discretion, the Company shall have the right to require any Participant, and such Participant by accepting the Awards granted under the Plan agrees, to pay to the Company the amount of any taxes which the Company shall be required to withhold with respect thereto. In the event of clauses (a), (b) or (c), with the consent of the Committee, at its sole discretion, such Participant may elect to pay to the Company an amount equal to the amount of the taxes which the Company shall be required to withhold by delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of the withholding tax obligation as determined by the Company; provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law. Such shares so delivered to satisfy the minimum withholding obligation may be either shares withheld by the Company upon the exercise of the Option or other shares. At the Committee's sole discretion, a Participant may elect to have additional taxes withheld and satisfy such withholding with cash or shares of Common Stock held for at least six (6) months prior to exercise, if, in the opinion of the Company's outside accountants, doing so, would not result in a charge against earnings.
16. Nontransferability, Beneficiaries. Unless otherwise determined by the Committee with respect to the transferability of Nonqualified Stock Options by a Participant to his Immediate Family Members (or to trusts or partnerships or limited liability companies established for such family members), no Award shall be assignable or transferable by the Participant, otherwise than by will or the laws of descent and distribution or pursuant to a beneficiary designation, and Options shall be exercisable, during the Participant's lifetime, only by the Participant (or by the Participant's legal representatives in the event of the Participant's incapacity). Each Participant may designate a beneficiary to exercise any Option held by the Participant at the time of the Participant's death or to be assigned any other Award outstanding at the time of the Participant's death. If no beneficiary has been named by a deceased Participant, any Award held by the Participant at the time of death shall be transferred as provided in his will or by the laws of descent and distribution. Except in the case of the holder's incapacity, an Option may only be exercised by the holder thereof.
17. No Right to Continuous Service. Nothing contained in the Plan or in any Award under the Plan shall confer upon any Participant any right with respect to the continuation of service with the Company or any of its Subsidiaries, or interfere in any way with the right of the Company or its Subsidiaries to terminate his or her Continuous Service at any time. Nothing contained in the Plan shall confer upon any Participant or other person any claim or right to any Award under the Plan.
18. Governmental Compliance. Each Award under the Plan shall be subject to the requirement that if at any time the Committee shall determine that the listing, registration or qualification of any shares issuable or deliverable thereunder upon any securities exchange or under any Federal or state law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition thereof, or in connection therewith, no such grant or award may be exercised or shares issued
or delivered unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
19. Adjustments; Corporate Events.Events.
(a) In the event of (x) any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate
transaction or event (including, without limitation, a Change in Control) (an "Event") that affects the Common Stock or (y) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Committee shall, in such manner as it may deem equitable, including, without limitation, adjust any or all of the following:
(i) adjusting any or all of (A) the number and kind of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) that may be delivered in respect of Awards or with respect to which Awards may be granted under the Plan (including, without limitation, adjusting any or all of the limitations under Sections 3 and 9 of the Plan) and (B) the terms of any outstanding Award, including, without limitation, (1) the number of shares Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate, (2) the grant or exercise price with respect to any Award or (3) any applicable performance measures (including, without limitation, Performance Objectives and Performance Goals);
(ii) providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event;
(iii) canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, shares of Common Stock, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per share of Common Stock received or to be received by other shareholders of the Company in such event), including without limitation, in the case of an outstanding Option, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares Common Stock subject to such Option over the aggregate exercise price of such Option (it being understood that, in such event, any Option having a per share exercise price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor); and
(iv) providing that any Award shall be exercisable (whether or not vested) as to all shares covered thereby for at least thirty (30) days prior to such Event.
(b) The existence of the Plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of
options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(c) The Committee's determination under this Section 19 shall be final, binding and conclusive.
20. Award Agreement. Each Award under the Plan shall be evidenced by agreement (the "Award Agreement") setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award, in addition to the terms and conditions specified in the Plan.
21. Amendment. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (a) no amendment shall be made without shareholder approval if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and (b) except as provided in Section 19, no amendment shall be made that would adversely affect the rights of a Participant under an Award theretofore granted, without such Participant's written consent.
22. General Provisions.Provisions.
(a) The Committee may require each Participant purchasing or acquiring shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that such Participant is acquiring the shares for investment and without a view to distribution thereof.
(b) All certificates for Common Stock delivered under the Plan pursuant to any Award shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. If the Committee determines that the issuance of Common Stock hereunder is not in compliance with, or subject to an exemption from, any applicable Federal or state securities laws, such shares shall not be issued until such time as the Committee determines that the issuance is permissible.
(c) It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b- 3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act. Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed in this Section 22(c), such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict.
(d) Except as otherwise provided by the Committee in the applicable grant or Award Agreement, a Participant shall have no rights as a shareholder with respect to any shares of Common Stocks subject to an Award until a certificate or certificates evidencing shares of Common Stock shall have been issued to the Participant and, subject to Section 19, no adjustment shall be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date on which Participant shall become the holder of record thereof.
(e) The law of the State of Delaware shall apply to all Awards and interpretations under the Plan regardless of the effect of such state's conflict of laws principles.
(f) Where the context requires, words in any gender shall include any other gender.
(g) Headings of Sections are inserted for convenience and reference; they do not constitute any part of this Plan.
(h) The Committee shall have the power to accelerate the time at which an Award shall be exercisable or vest notwithstanding the terms of any Award Agreement.
(i) No payment pursuant to the Plan shall be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
(j) The expenses of administering the Plan shall be borne by the Company and its Subsidiaries.
(k) No fractional shares of Common Stock shall be issued and the Committee shall determine, in its discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding up or down as appropriate.
(l) The Plan is intended to be an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.
23. Expiration of the Plan. Subject to earlier termination pursuant to Section 21, no Award may be granted following the 10-year anniversary of the Effective Date and except with respect to outstanding Awards, this Plan shall terminate.
24. Effective Date; Approval of Shareholders. The Plan is effective as of the date it is approved by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware (the "Effective Date")*. Unless the Company determines to submit Section 9 of the Plan and the definition of Performance Goal to the Company's stockholders at the first stockholder meeting that occurs in the fifth year following the year in which the Plan was last approved by stockholders (or any earlier meeting designated by the Board), in accordance with the requirements of Section 162(m) of the Code, and such stockholder approval is obtained, then no further Performance Compensation Awards shall be made to Covered Employees under Section 9 after the date of such annual meeting, but the remainder of the Plan shall continue in effect.
(continued from other side)
I/We hereby revoke any other proxy to vote at the Annual Meeting, and hereby ratify and confirm all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. With respect to matters not known at the time of the solicitation hereof, said proxies are authorized to vote in accordance with their best judgment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, 4, 5 AND 6.
I/We hereby acknowledge prior receipt of the notice of annual meeting of stockholders and proxy statement dated March , 2014, the Annual Report on Form 10-K for the year ended November 30, 2013, the Current Report on Form 8-K filed with the SEC on October 4, 2013 and the Current Report on Form 8-K/A filed with the SEC on December 6, 2013 and hereby revoke any proxy or proxies heretofore given. This proxy may be revoked at any time before it is voted by delivering to the Secretary of the Company either a written revocation of proxy or a duly executed proxy bearing a later date, or by appearing at the 2014 annual meeting of stockholders and voting in person.
If you receive more than one proxy card, please sign and return all cards in the accompanying envelope.
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
JOE'S JEANS INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 8, 2014
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
The Notice of Meeting, proxy statement and proxy card
are available at http://www.joesjeans.com/2014proxy.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The stockholder (whose signature appears in the reverse side of this proxy card) of Joe's Jeans Inc., or the Company, hereby appoints Marc B. Crossman with full power of substitution, as proxy to cast all votes, as designated below, which the undersigned stockholder is entitled to cast at the 2014 annual meeting of stockholders to be held on Thursday, May 8, 2014, at 9:00 a.m. (local time) at the Sofitel Hotel Los Angeles, 8555 Beverly Boulevard, Los Angeles, California 90048 upon the following matters and any other matter as may properly come before the 2014 annual meeting of stockholders or any adjournments thereof.
(continued and to be dated and signed on reverse side.)
VOTE BY TELEPHONE OR INTERNET
QUICK * * * EASY * * * IMMEDIATE
Joe's Jeans Inc.
Voting by telephone or Internet is quick, easy and immediate. As a Joe's Jeans Inc. stockholder, you have the option of voting your shares electronically through the Internet or on the telephone, eliminating the need to return the proxy card. Your electronic vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed, dated and returned the proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Daylight SavingStandard Time, on October 25, 2011.May 7, 2014.
To Vote Your Proxy By Internet
www.cstproxyvote.com
Have your proxy card available when you access the above website. Follow the prompts to vote your shares.
To Vote Your Proxy By Phone
1-866-894-0537
Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares.
PLEASE DO NOT RETURN THE CARD BELOW IF YOU ARE VOTING ELECTRONICALLY OR BY PHONE.
To Vote Your Proxy By Mail
Mark, sign and date your proxy card below, detach it and return it in the postage-paid envelope provided.
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
(continued from other side)
I/We hereby revoke any other proxy to vote at the Annual Meeting, and hereby ratify and confirm all that said attorneys and proxies, and each of them, may lawfully do by virtue hereof. With respect to matters not known at the time of the solicitation hereof, said proxies are authorized to vote in accordance with their best judgment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, AND 5 AND "FOR" 3 YEARS IN PROPOSAL 4.
I/We hereby acknowledge prior receipt of the notice of annual meeting of stockholders and proxy statement dated September , 2011, the Annual Report on Form 10-K for the year ended November 30, 2010 and hereby revoke any proxy or proxies heretofore given. This proxy may be revoked at any time before it is voted by delivering to the Secretary of the Company either a written revocation of proxy or a duly executed proxy bearing a later date, or by appearing at the 2011 annual meeting of stockholders and voting in person.
If you receive more than one proxy card, please sign and return all cards in the accompanying envelope.
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
JOE'S JEANS INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERSTO BE HELD ON WEDNESDAY, OCTOBER 26, 2011
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
The Notice of Meeting, proxy statement and proxy cardare available at http://www.joesjeans.com/2011proxy.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The stockholder (whose signature appears in the reverse side of this proxy card) of Joe's Jeans Inc., or the Company, hereby appoints Marc B. Crossman with full power of substitution, as proxy to cast all votes, as designated below, which the undersigned stockholder is entitled to cast at the 2011 annual meeting of stockholders to be held on Wednesday, October 26, 2011, at 9:00 a.m. (local time) at the Sofitel Hotel Los Angeles, 8555 Beverly Boulevard, Los Angeles, California 90048 upon the following matters and any other matter as may properly come before the 2011 annual meeting of stockholders or any adjournments thereof.
(continued and to be dated and signed on reverse side.)
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
| Please mark your votes like this | ý | |||||||||||||||||
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. | ||||||||||||||||||
1. Election of (Instruction: to withhold authority to vote for any individual nominee, strike that nominee's name from the list | FOR all the nominees listed above except as marked to the contrary below). | WITHHOLD AUTHORITY to vote for all the nominees listed above. | ||||||||||||||||
2. | ||||||||||||||||||
FOR o | AGAINST o | ABSTAIN o | ||||||||||||||||
(1) Samuel J. Furrow (4) Joe Dahan (7) Suhail R. Rizvi | (2) Marc B. Crossman (5) Kelly Hoffman (8) Kent Savage | (3) Joanne Calabrese (6) Peter Kim | o | o | ||||||||||||||
3. Proposal to approve, under applicable NASDAQ Listing Rules, the issuance of common stock upon conversion of the Buyer Notes issued in connection with our acquisition of Hudson in excess of 19.99% of the common stock outstanding prior to such issuance. | FOR o | o | ||||||||||||||||
4. Proposal to approve an amendment to the Amended and Restated 2004 Stock Incentive Plan to increase the reservation of the total shares available for issuance to 11,825,000 shares of common stock. | FOR o | AGAINST o | ABSTAIN o | |||||||||||||||
5. Proposal to conduct an advisory vote to approve named executive officer compensation. | FOR o | AGAINST o | ABSTAIN o | |||||||||||||||
6. Proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of the Company for the fiscal year ending November 30, 2014. | FOR o | AGAINST o | ABSTAIN o | |||||||||||||||
This proxy, when properly executed, will be voted as directed by the undersigned stockholder and in accordance with the best judgment of the proxies as to other matters. | ||||||||||||||||||
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" EACH OF THE NOMINEES LISTED IN PROPOSAL 1 AND "FOR" PROPOSALS 2, 3, 4, 5, AND 6 AND IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXIES AS TO OTHER MATTERS. | ||||||||||||||||||
o I PLAN TO ATTEND THE MAY 8, 2014 ANNUAL MEETING OF STOCKHOLDERS. | ||||||||||||||||||
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY TO ENSURE A QUORUM AT THE MEETING. IT IS IMPORTANT WHETHER YOU OWN FEW OR MANY SHARES. DELAY IN RETURNING YOUR PROXY MAY SUBJECT THE COMPANY TO ADDITIONAL EXPENSE. | ||||||||||||||||||
COMPANY ID: PROXY NUMBER: ACCOUNT NUMBER: | ||||||||||||||||||
Signature of Stockholder or Authorized RepresentativeDate, 2011.
| Signature of Stockholder or Authorized Representative | Date | , 2014. |
Please date and sign exactly as name appears hereon. Each executor, administrator, trustee, guardian, attorney-in-fact and other fiduciary should sign and indicate his or her full title. In the case of stock ownership in the name of two or more persons, all persons should sign.