SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/X/ Preliminary Proxy Statement
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/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
THE WET SEAL, INC.
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(Name
x Preliminary Proxy Statement | ¨ Confidential, for Use of the Commission Only | |
¨ Definitive Proxy Statement ¨ Definitive Additional Materials ¨ Soliciting Material under Rule 14a-12 |
The Wet Seal, Inc.
(Name of Registrant as Specified In Its Charter)
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THE WET SEAL, INC.
26972 BURBANK
FOOTHILL RANCH, CALIFORNIABurbank
Foothill Ranch, California 92610
May 4, 1999
, 2004
Dear Stockholder:
You are cordially invited
I am pleased to invite you to attend the Annual Meetinga special meeting (the “Special Meeting”) of Stockholders of
The Wet Seal, Inc.stockholders to be held at the Westin South Coast Plaza, 686 Anton Blvd.on, Costa Mesa, California 92626,December, 2004, at 10:00 a.m., on Wednesday, Junelocal time, at our principal offices located at 26972 Burbank, Foothill Ranch, California 92610, to vote upon the stockholder proposals contained in this proxy statement.
On November 9, 1999.
During2004, we announced that we had entered into a series of financing transactions with S.A.C. Capital Associates, LLC, an entity managed by S.A.C. Capital Advisors, LLC, and other participating investors (collectively, the Annual Meeting“Investors”). In these financings we have agreed, among other things, to issue:
| • | $40,000,000 in aggregate principal amount of our new secured convertible promissory notes (the “Convertible Notes”) which will be due seven (7) years from the date of issuance and will be convertible into shares of our Class A Common Stock at an initial conversion price of $1.50 per share (subject to anti-dilution adjustments). The Convertible Notes will bear interest at the applicable federal mid-term rate for the month in which the Convertible Notes will be issued (currently3.55%) and will be secured by a second priority lien on substantially all of the assets of our company and certain of our subsidiaries. |
Any holder of the Convertible Notes, Additional Investment Right Warrants and Warrants will be prohibited from exercising such securities if such holder (together with its affiliates) would beneficially own in excess of 9.99% of our outstanding common stock as a result of such exercise (or a lower percentage pursuant to notice from the applicable Investor).
In addition, certain Investors have provided us with an interim secured bridge loan in the amount of $10,000,000 which will be used for working capital purposes through the closing of our transactions with the Investors. At this closing the outstanding principal amount (together with accrued and unpaid interest) of the bridge loan will be applied as partial payment of the aggregate purchase price for the securities to be issued to the Investors.
We have undertaken these transactions to address our need to significantly improve our liquidity position and to return our company to profitability. We believe the financing arrangements provided by the Investors offer us a comprehensive response to our financial condition that has been deteriorating for several quarters. In particular, without the interim bridge loan provided by the Investors, we would have faced significant liquidity problems in the near term that most likely would have required us to file for bankruptcy protection.
However, prior to consummating the transactions with the Investors, we need to obtain the approval of our stockholders with regard to the following proposals described in more detail in this proxy statement:
In addition to these proposals, we will seek your approval of The Wet Seal, Inc. 2004 Stock Incentive Plan which will allow us to offer new incentive arrangements to management who will assist us in the performance bonus award and incentive
bonus award to the Vice Chairman and Chief Executive Officerturn-around of the
Company to qualify such awards under Section 162(m) of the Internal
Revenue Code of 1986, as amended.
4. Ratification and approval of the performance bonus award and incentive
bonus award to the President and Chief Operating Officer of the Company
to qualify such awards under Section 162(m) of the Internal Revenue Code
of 1986, as amended.
5. Ratification of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year 1999.
6. To transact such other business as may properly come before the Annual
Meeting.
Theour Wet Seal operations.
After careful review, our Board of Directors has fixedunanimously determined that each of the closeproposals is advisable and in the best interest of business on April 26, 1999 asour company. Therefore, our Board of Directors recommends that you vote to approve each of the record date for determination of stockholders entitledproposals to notice of,be considered at the Special Meeting.
We encourage you to read this proxy statement which explains each proposal in greater detail. We hope you attend the Special Meeting in person, and we encourage you to vote at the Annual Meeting. A list of such stockholders will be available for
examination by any stockholder for any purpose germane to the Annual Meeting,
during normal business hours, at the office of the Company for a period of ten
days prior to the Annual Meeting.
To assure that your shares will be represented at the Annual Meeting, please
signby marking, signing and promptly return the accompanying proxy card indating the enclosed envelope.proxy if you are not able to attend. You may revoke your proxy at any time before it is voted.
By Orderexercised at the Special Meeting, or vote your shares personally if you attend the Special Meeting. If you sign, date and mail your proxy without indicating how you want to vote, your proxy will be counted as a voteFOR the approval of the Boardratification and issuance of Directors,
[SIGNATURE]
Stephen Gross
SECRETARY
Dated: May 4, 1999
THE WET SEAL, INC.
26972 BURBANK
FOOTHILL RANCH, CALIFORNIA 92610
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PROXY STATEMENT
JUNE 9, 1999
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This Proxy Statement is furnished by the Boardnew securities described in this proxy statement,FOR the approval of Directorsan amendment to our Restated Certificate of The Wet Seal,
Inc., a Delaware Corporation (the "Company"), in connection with the
solicitation of proxies for use at the Annual Meeting of StockholdersIncorporation, as amended, relating to be held
at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa, California on
Wednesday, June 9, 1999 beginning at 10:00 a.m. and at any adjournments thereof.
The Annual Meeting has been called to consider and vote upon the election of
nine directors; an increase in the number of authorized shares of the Company's
Preferred Stock andour Class A Common Stock; to ratifyStock and approveFOR the performance
bonus awardapproval of The Wet Seal, Inc. 2004 Stock Incentive Plan.
Thank you in advance for your participation and incentive bonus awardprompt attention.
| Sincerely, |
| HENRY WINTERSTERN |
| Chairman of the Board |
THE WET SEAL, INC.
26972 Burbank
Foothill Ranch, California 92610
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DECEMBER, 2004
10:00 a.m.
This proxy statement relates to the Vice Chairmanspecial meeting (the “Special Meeting”) of stockholders of The Wet Seal, Inc. to be held on, December, 2004, at 10:00 a.m., local time, at our principal offices located at 26972 Burbank, Foothill Ranch, California 92610, or at such other time and Chief Executive
Officerplace to which the Special Meeting may be adjourned or postponed. This notice, the attached proxy statement and form of proxy card are being first mailed to our stockholders on or about, 2004.THE ENCLOSED PROXY IS SOLICITED BY OUR BOARD OF DIRECTORS.
Each of the Company andmatters submitted to our stockholders at the President and Chief Operating Officer of the
Company and to qualify such awards under Section 162(m) of the Internal Revenue
Code of 1986, as amended; to ratify the Board of Directors' nomination of
Deloitte & Touche LLP as the Company's independent auditors; and to consider any
other business as may properly come before the Annual Meeting. This Proxy
Statement andSpecial Meeting is described in more detail in the accompanying proxy are being sentstatement. We encourage you to read the proxy statement in its entirety, together with the exhibits to the accompanying proxy statement.
At the Special Meeting, you and our other stockholders will be asked to:
| 1. | Ratify the issuance of the Series A Warrants and approve the issuance of our new secured convertible notes, additional investment right warrants, Series B, Series C and Series D warrants and the shares of our Class A Common Stock that are issuable upon the conversion of our new secured convertible notes and exercise of our new warrants; |
| 2. | Approve an amendment to our Restated Certificate of Incorporation, as amended, to increase the number of authorized shares of (i) our capital stock from 72,000,000 to 162,000,000, (ii) our Common Stock from 70,000,000 to 160,000,000, and (iii) our Class A Common Stock from 60,000,000 to 150,000,000; |
| 3. | Approve The Wet Seal, Inc. 2004 Stock Incentive Plan; and |
| 4. | Transact such other business as may properly come before the Special Meeting or any adjournment thereof. |
We will not be able to complete our financing transactions with S.A.C. Capital Associates, LLC and the other participating investors described in the accompanying proxy statement unless you approve Proposals 1 and 2.
You may vote at the Special Meeting if you were a stockholder of record on
or about May 4, 1999.
VOTING BY STOCKHOLDERS
Only holders of record of the Company's common stock, at the close of business on April 26, 1999,, 2004.
Your vote is important. You may vote on these matters in person or by proxy. We ask that you complete and return the enclosed proxy card promptly – whether or not you plan to attend the Special Meeting – in the enclosed addressed, postage-paid envelope, so that your shares will be represented and voted at the special meeting in accordance with your wishes. You can revoke your proxy at any time prior to its exercise by written notice received by us, by delivering to us a duly executed proxy bearing a later date, or by attending the Special Meeting and voting your shares in person. If you sign, date and mail your proxy without indicating how you want to vote, your proxy will be counted as a voteFOR the approval of the issuance of the new securities described herein,FOR the approval of an amendment to our Restated Certificate of Incorporation, as amended, relating to an increase in the number of authorized shares of our Class A Common Stock andFOR the approval of The Wet Seal, Inc. 2004 Stock Incentive Plan.
| BY ORDER OF THE BOARD OF DIRECTORS, |
| DOUGLAS C. FELDERMAN |
| Chief Financial Officer |
Foothill Ranch, California
, 2004
If you have any questions about the proposals, including the procedures for voting your shares, please contact Douglas C. Felderman at (949) 699-3919.
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER, 2004
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are entitlednot limited to, receive noticestatements that relate to our company’s opening and closing of stores, profitability and growth, demand for our products or any other statements that relate to the intent, belief, plans or expectations of our company or our management. All forward-looking statements made by our company involve material risks and uncertainties and are subject to change based on factors beyond our company’s control. Accordingly, our future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in our filings with the Securities and Exchange Commission (the “SEC”). We will not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
WHERE YOU CAN OBTAIN ADDITIONAL INFORMATION
Within this proxy statement, we have made reference to documents related to the financing transactions with the Investors which have been attached as exhibits to our Current Report on Form 8-K filed with the SEC on November 12, 2004 (our “Transaction 8-K Report”). Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the proxy statement for our annual meeting of stockholders are made available, free of charge, on our website, http://www.wetsealinc.com, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. The content of our website is not intended to be incorporated by reference to this proxy statement. You may read and copy any document we file, including a copy of our Transaction 8-K Report, without charge at the SEC’s Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. You can also obtain these documents from the SEC website, http://www.sec.gov. We will also provide without charge to each person to whom this proxy statement has been delivered, upon written or oral request, copies of the documents attached as exhibits to our Transaction 8-K Report. Written or telephone requests for such copies should be directed to Douglas C. Felderman, Chief Financial Officer, The Wet Seal, Inc. 26972 Burbank, Foothill Ranch California 92610, (949) 699-3919.
i
We have included the following summary of our financing agreements with S.A.C. Capital Associates, LLC and other participating investors to provide background information about the proposals to be presented at the Special Meeting of our stockholders. You are encouraged to read this proxy statement in its entirety, together with the exhibits to this proxy statement.
Special Meeting
Time and Place of Special Meeting
We have sent you this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote at our special meeting (the “Special Meeting”) of stockholders or any adjournment or postponement of the AnnualSpecial Meeting. The Special Meeting will be held on, December, 2004, at 10:00 a.m. local time, at our principal offices located at 26972 Burbank, Foothill Ranch, California.
Voting
You may vote at the Special Meeting if you were a stockholder of record at the close of business on, 2004, the record date for the Special Meeting. On that date, there were 10,733,386 shares of the Company'sour Class A Common Stock $.10 par value, and 2,912,665 shares of the Company'sour Class B Common Stock $.10 par value, issued and outstanding. Of the 10,733,386There are currently no shares held as treasury stock. Holders of our Class A Common Stock 1,327,000 shares are currently held as Treasury
Stock and thus not entitled to vote. Class A Common Stock is entitled to one vote per share and, while both theour Class A Common Stock and our Class B Common Stock vote together as a single Class, theclass, holders of our Class B Common Stock isare entitled to two votes per share. However,
with respect to the vote to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Class A Common Stock, the holders of
Class A Common Stock shall vote as a separate class. According to the Company'sour Restated Certificate of Incorporation, as amended, stockholders maydo not cumulate theirhave any cumulative voting rights. Thus, the holders of a plurality
Quorum
The presence, in person or by proxy, of the shares voting at the
Annual Meeting will be able to elect all of the directors. The approval of item
2 will require the affirmative vote of the majority of the outstanding shares of
the Company entitled to vote thereon and, with respect to the increase in the
number of authorized shares of Class A Common Stock, the affirmative vote of the
majority of the outstanding shares of Class A Common Stock entitled to vote
thereon, voting together as a separate class. The ratification and approval of
items 3 through 5 will require the affirmative vote of holders of a majority of theshares of our capital stock (which includes each share of our Class A Common Stock and Class B Common Stock (on a converted basis)) issued and outstanding and entitled to vote thereon present in person or by proxyis necessary to constitute a quorum at the AnnualSpecial Meeting.
Abstentions and Non-votes
The shares represented by each properly executed unrevoked proxy received in time for the AnnualSpecial Meeting will be voted in accordance with the instructions specified therein, or, intherein. In the absence of instructions, the unrevoked proxies will be votedFOR itemsProposals 1, through 5,2 and 3 and will be voted in accordance with the discretion of the proxiesproxy holders upon all other matters which may properly come before the AnnualSpecial Meeting. Any proxy
received by the Company may be subsequently revoked by the stockholder any time
before it is voted at the meeting either by delivering a subsequent proxy or
other written notice of revocation to the Company at its above address or by
attending the meeting and voting in person. Pursuant to Delaware law, abstentions are treated as present and entitled to vote for purposes of determining a quorum at the Special Meeting, and thustherefore would have the effect of a vote against a proposal which requires the matter.majority of the votes present and entitled to vote. A broker non-vote on a matterproposal is considered not entitled to vote on that matter and thus is not counted in determining whether a matterproposal requiring approval of a majority of the shares present and entitled to vote has been approved or whether a majority of the vote of the shares present and entitled to vote has been cast.
1
ELECTION
Revocation of Proxy
Any proxy received by our company may be subsequently revoked by the stockholder any time before it is voted at the meeting either by delivering a subsequent proxy or other written notice of revocation to our company at its principal offices or by attending the Special Meeting and voting in person.
The Financing
Background of the Financing(see discussion beginning on page7)
Beginning in the third quarter of our 2002 fiscal year, we began experiencing a significant decline in sales in our Wet Seal division and these declines continue to date. The continuing decline in sales has led to significant losses and the deterioration in our working capital position, raising concerns about our ability to fund our operations and to continue as a going concern. Despite a private placement completed in June 2004, which raised $27,200,000 in gross proceeds, we continue to experience liquidity problems which impact our ability to successfully sell merchandise in our stores and, if not solved, could lead to a bankruptcy filing by our company.
In August 2004, our Board of Directors established a special committee of independent directors (the “Special Committee”), consisting of Henry Winterstern, as chairman, Alan Siegel and Howard Gross, to analyze alternatives to enhance stockholder value. In September 2004, the Special Committee engaged Rothschild Inc. (“Rothschild”) to provide the Special Committee and, at its request, our company with financial advisory services as the Special Committee evaluated a series of business strategies. Over the next several weeks, the Special Committee and Rothschild reviewed and analyzed a number of business transactions including a transaction proposed by a competitor of our company.
On October 31, 2004, the advisor to S.A.C. Capital Associates, LLC (“SAC”), a participant in our June private placement, delivered a term sheet to us in connection with the transactions described in this proxy statement. After evaluating the term sheet and engaging in discussions with SAC and its representatives, the Special Committee unanimously recommended to our Board of Directors to pursue the financing alternative presented by the advisor to SAC primarily due to the provision of interim financing for our company, the aggregate amount of capital to be provided at closing and the likelihood of closing. In the opinion of the Special Committee, the financing alternative offered by our competitor did not provide us with the sufficient short term and long term capital or certainty of closure necessary for the continued viability of our company.
On November 3, 2004, we entered into an exclusivity agreement with the advisor to SAC pursuant to which we agreed not to accept any competing offer or proposal from any other entity (other than the Investors (as defined below)) until November 14, 2004. On November 8, 2004, our entire Board of Directors participated in a telephonic meeting to consider the terms of the financing proposal with SAC and other participating investors (collectively, the “Investors”). During this meeting, Rothschild provided our Board of Directors with an analysis of the available alternatives and of the merits of the financing with the Investors in light of the then existing alternatives. Rothschild advised our Board of Directors that the Investors’ transaction would, in summary:
For a more detailed discussion of the Rothschild presentation see page8.
On November 8, 2004, our Board of Directors, based on the unanimous recommendation of the Special Committee, unanimously approved and authorized the financing transactions with the Investors (the “Principal Financing”). On November 9, 2004, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the Investors, pursuant to which we agreed to issue seven (7) year secured convertible notes (convertible into shares of our Class A
Common Stock), additional investment right warrants (exercisable into additional secured convertible notes) and warrants (exercisable into shares of our Class A Common Stock). The securities may be issued pursuant to an indenture, warrant agreements and/or related documents.
Participants’ Rights Pursuant to the June 2004 Private Placement(see discussion on page 8)
Pursuant to the terms of a securities purchase agreement, dated as of June 29, 2004, by and among our company, SAC and certain other participants (collectively with SAC, the “Participants”), the Participants have the right to purchase up to one-third (25% exclusive of SAC’s right) of the securities in the Principal Financing. As a result the Investors’ purchase obligation in the Principal Financing will be reduced to accommodate any election by any Participant to participate in the Principal Financing. The allocation of any such reduction shall be made ratably among the Investors. Nevertheless, in no event shall the purchase obligation of SAC be reduced to an amount that would be less than a majority of the securities to be purchased in the Principal Financing.
The Interim Financing (see discussion on page 8)
In connection with the execution of the Securities Purchase Agreement, we entered into a $10,000,000 bridge loan credit facility. Certain of the Investors (the “Bridge Loan Participants”) agreed to provide us with this loan to enable our company to have access to sufficient capital to meet our financial obligations through the closing of our transactions with the Investors.
The annual interest rate on this loan is 25% for the term of the facility. The maturity date is the earlier of (i) February 28, 2005 (or as determined in SAC’s sole discretion, March 31, 2005 or April 29, 2005), (ii) the closing of the Principal Financing or (iii) the termination of the Securities Purchase Agreement. The loan is secured by a junior lien against all of the collateral that currently secures all borrowing obligations owed to our present lenders under our existing working capital and term loan credit facilities. In connection with this loan, certain of our current lenders, including Fleet Retail Group, Inc. and Fleet National Bank (currently Bank of America Corporation) and Back Bay Capital Funding LLC, entered into an intercreditor agreement and a subordination agreement pursuant to which the Bridge Loan Participants agreed, among other things, to subordinate their respective rights under the bridge loan credit facility to our debt obligations under our current credit facilities.
At the closing of the Principal Financing, the outstanding principal amount (together with accrued and unpaid interest) of the bridge loan will be applied as partial payment of the aggregate purchase price for the securities to be issued to the Investors.
Material Terms of the Convertible Notes(see discussion on page9)
Pursuant to the terms of the Securities Purchase Agreement, we have agreed to issue $40,000,000 in aggregate principal amount of secured seven (7) year convertible notes (the “Convertible Notes”). The Convertible Notes will bear interest at the federal midterm rate as defined in the Internal Revenue Code of 1986 for the month in which the Convertible Notes will be issued (currently 3.55%). The interest will be payable in cash or may be capitalized on the outstanding principal amount at our option; provided, that, no capitalized interest may be converted into shares of Class A Common Stock and any unpaid capitalized interest will cease to exist upon such conversion. The Convertible Notes are convertible initially into 26,666,666 shares of our Class A Common Stock at an initial conversion price of $1.50.
The conversion price of the Convertible Notes will have full-ratchet anti-dilution protection which means the conversion price will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock, or securities convertible or exercisable into shares of our Class A Common Stock, at prices below the conversion price of the Convertible Notes. In the event such an adjustment is required, the then current conversion price of the Convertible Notes will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Material Terms of the Additional Investment Right Warrants(see discussion on page 11)
In connection with the financing, we have agreed to issue two tranches of additional investment right warrants (collectively, the “Additional Investment Right Warrants”) to acquire:
We have the right to require the Investors to exercise all or a portion of the Additional Investment Right Warrants into Series A Notes and/or Series B Notes (triggering the $9,900,000 and $5,950,000 payment by the Investors to us) beginning six months after the issuance of the Series A AIR and twelve months after the issuance of the Series B AIR. This right terminates on the third anniversary of the issuance of the Additional Investment Right Warrants. In the event of a mandatory exercise, the conversion prices of the Series A Notes and the Series B Notes into Class A Common Stock will be the lesser of (x) the current market price (as defined in the Series A and Series B Notes) of the Class A Common Stock at the time of mandatory exercise and (y) $1.65 and $1.75, respectively.
The conversion prices of the Series A and Series B Notes will have full-ratchet anti-dilution protection which means the respective conversion prices will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective conversion prices of the Series A and Series B Notes. In the event such an adjustment is required, the then current conversion price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Material Terms of the Warrants(see discussion on page 12)
In connection with the financing, on November 9, 2004, we issued to the Investors one tranche of four (4) year warrants with an initial exercise price of $1.75 per share for our Class A Common Stock (exercisable initially into 2,300,000 shares of our Class A Common Stock). In addition, we have agreed to issue to the Investors three additional tranches of warrants exercisable into an aggregate of 11,300,000 shares of our Class A Common Stock (collectively, the “Warrants”) as follows:
The exercise prices of the Warrants will also have full-ratchet anti-dilution protection which means the respective exercise prices of the Warrants will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective exercise prices of the Warrants. In the event such an adjustment is required, the then current exercise price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Class A Common Stock Ownership Limitations and Your Dilution(see discussion on page 15)
Pursuant to the terms of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, a holder of such notes or warrants is prohibited from converting or exercising the notes or warrants if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended)) more than 9.99% of our outstanding Class A Common Stock (or a lower percentage pursuant to notice from the applicable Investor).
NEVERTHELESS, YOU SHOULD BE AWARE THAT IF (I) ALL OF DIRECTORS
DIRECTORS
The Company's Bylaws giveTHE CONVERTIBLE NOTES, THE SERIES A NOTES, AND THE SERIES B NOTES ARE CONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW STOCK INCENTIVE PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP IN OUR COMPANY OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO 33.7%.
Board of Directors Matters
We have agreed, as conditions to the closing of our Principal Financing, that our Board of Directors will consist of no more than 9 members and that the Investors must be satisfied with the identity of (i) the Chairman of the Board of Directors of our company and (ii) at least a number of directors equal to one less than the powerminimum number of directors that would constitute a majority of the Board of Directors of our company at closing. Our Board of Directors currently consists of 7 members and at this time there is no intention to setfill any vacancies on our Board of Directors.
Consulting Agreements and Other Arrangements(see discussion on page 14)
We are currently negotiating the terms of a short-term consulting agreement with Michael Gold. Mr. Gold is a seasoned specialty retail executive who currently operates over 400 retail clothing stores in Canada and the United States. We intend to enter into a long term consulting arrangement with Mr. Gold prior to the closing of the Principal Financing.
We have also entered into a short-term consulting agreement with RT Management & Consulting Services, LLC, of which Thomas Brosig is president. Pursuant to the consulting agreement, RT Management has been engaged to provide an on-site analysis of all non-merchandising departments, an analysis of administrative costs, employee and compensation issues, organizational structure and information systems, and a physical inspection of buildings, equipment and distribution centers.
Concurrently with this transaction, we are also reevaluating our merchandising history, the viability of each of our stores, the value of our real estate and leases and the strengths and weaknesses of our general operations. We are engaging consultants to assist in this analysis and will be preparing a revised business plan in connection therewith, which will include the closing of certain stores.
Our Business Strategy Following the Principal Financing
The purpose of the Principal Financing and entering into arrangements with Michael Gold, Thomas Brosig and other management additions which may occur is to implement our strategy to return our company to profitability. We believe that the Principal Financing will provide us with the capital needed to effect necessary store closures while maintaining appropriate inventory levels at stores we intend to keep open as well as to absorb operating losses that may be incurred while we implement our plans. With regard to our merchandise, our merchandising strategy will focus on price, while increasing our sales per square foot by offering fresh inventory reflecting current fashion trends.
The Proposals
We are seeking the approval of the following proposals from our stockholders:
The ratification of the issuance of the Series A Warrants and the issuance of our new secured convertible notes, additional investment right warrants, warrants and the shares of our Class A Common Stock that are issuable upon the conversion of our new secured convertible notes and the exercise of our new warrants
Due to the significant number of shares of Class A Common Stock that may be issuable pursuant to the terms of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, we are required by applicable rules of our trading market, the Nasdaq National Market, to seek your approval of the issuance of these securities and the underlying shares of Class A Common Stock.
WE WILL NOT BE ABLE TO COMPLETE OUR FINANCING TRANSACTIONS WITH THE INVESTORS DESCRIBED IN THIS PROXY STATEMENT UNLESS YOU APPROVE THIS PROPOSAL AND PROPOSAL 2.
Charter Amendment to Increase the Number of Authorized Shares of our Class A Common Stock
We do not have enough authorized shares of Class A Common Stock to satisfy the conversion and exercise rights associated with securities to be issued in the Principal Financing with the Investors. Accordingly, we seek your approval to amend our Restated Certificate of Incorporation, as amended, to increase the number of directors
at no less than three nor more than fifteen. authorized shares of Class A Common Stock.
WE WILL NOT BE ABLE TO COMPLETE OUR FINANCING TRANSACTIONS WITH THE INVESTORS DESCRIBED IN THIS PROXY STATEMENT UNLESS YOU APPROVE THIS PROPOSAL AND PROPOSAL 1.
The sizeWet Seal, Inc. 2004 Stock Incentive Plan
We believe it is essential to attract turn-around and merchandising management to improve the operations of our stores and the financial position of our company. In order to do so, we believe that it is appropriate to provide such individuals with compensation based upon the operating performance of our company. It is our intention to use The Wet Seal, Inc. 2004 Stock Incentive Plan (the “Plan”) to offer equity based incentive arrangements to these managers and consultants. Therefore, we seek your approval of the Company's Plan.
Board is
currently set at nine. Recommendation
THE BOARD OF DIRECTORS OF OUR COMPANY UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF PROPOSALS 1, 2 AND 3.
RATIFICATION OF THE ISSUANCE OF THE SERIES A WARRANTS AND APPROVAL OF THE
ISSUANCE OF OUR NEW SECURED CONVERTIBLE NOTES, ADDITIONAL INVESTMENT RIGHT
WARRANTS, WARRANTS AND THE SHARES OF OUR CLASS A COMMON STOCK THAT ARE
ISSUABLE UPON THE CONVERSION OF OUR NEW SECURED CONVERTIBLE NOTES AND
EXERCISE OF OUR NEW WARRANTS
The directors so elected will serve untilFinancing
Background of the next Annual
MeetingFinancing
Beginning in the third quarter of Stockholders. Nine directors arefiscal year 2002, we began experiencing a significant decline in sales in our Wet Seal division and these declines continue. The continuing decline in sales has led to be elected atsignificant losses and the Annual Meetingdeterioration in our working capital position and has raised concerns about our ability to be heldfund our operations and to continue as a going concern. Despite a private placement of our Class A Common Stock completed on June 29, 2004, which raised $27,200,000 in gross proceeds, we continue to experience liquidity issues. The second quarter of fiscal year 2004 represented our eighth consecutive quarter reflecting negative comparable store sales and operating losses.See our Quarterly Report on Form 10-Q for the fiscal period ending July 31, 2004, as filed with the SEC on September 9, 1999. All2004.
In addition to our disappointing operational and financial performance in the second quarter of 2004, our subsequent Fall back-to-school merchandising efforts have not produced anticipated results. Consequently, we have taken a substantial non-cash charge which has resulted in our writing off of deferred tax assets and the nominees are currentlyunamortized portion of certain leasehold improvements. On August 18, 2004, our Board of Directors established a Special Committee of independent directors of our company to analyze appropriate alternatives to enhance stockholder value. The Special Committee was composed of Howard Gross, Alan Siegel and Henry Winterstern, as Chairman. The Special Committee engaged the Company. The Board knowslaw firm of no reason why any nominee for director would be
unableWillkie Farr & Gallagher LLP to serve as its legal counsel, and following a director.series of interviews with investment banking firms, engaged Rothschild in September 2004 to provide financial advisory services. Also, beginning in August 2004, our Board of Directors commenced holding bi-weekly meetings during which the directors were provided with information regarding the financial condition and operations of our company and the alternatives being considered by the Special Committee with the assistance of Rothschild.
After we issued our press release announcing the formation of the Special Committee and following the retention of Rothschild, the Special Committee and Rothschild contacted, or were contacted by, several interested parties regarding business transactions, including a competitor interested in acquiring most of the operations (including the operating leases) of our Wet Seal division. However, none of these indications of interest were made on business terms or had sufficient clarity, in the opinion of the Special Committee, to warrant additional discussions.
In October 2004, the Special Committee began discussions regarding financing alternatives with the advisor to SAC, a participant in our June 2004 private placement. Following its execution of a customary confidentiality and standstill agreement, the Special Committee began negotiations with the advisor to SAC with respect to the potential purchase of certain notes, investment right warrants and warrants of our company as well as the Investors’ ability to offer interim financing prior to the closing of the proposed transactions.
On October 31, 2004, the advisor to SAC delivered a term sheet to us in connection with the transactions described in this proxy statement. The Special Committee unanimously recommended to our Board of Directors to pursue the financing alternative presented by the advisor to SAC, instead of the alternative proposed by our competitor, primarily due to (i) the commitment to provide interim financing for our company, (ii) the provision of sufficient capital to improve our liquidity position and enable us to attract and retain management with retail and turn-around experience and (iii) a higher likelihood of closure in comparison with the competitor’s proposal. On November 3, 2004, we entered into an exclusivity arrangement with the advisor to SAC,
pursuant to which we agreed not to accept any competing offer or proposal from any other entity (other than the Investors) until November 14, 2004. On November 8, 2004, our entire Board of Directors participated in a telephonic meeting to consider the terms of the financing arrangements offered by the Investors. The Special Committee unanimously concluded that the transaction with the Investors was the best alternative available to our company and our stockholders and recommended to the Board of Directors that it approve this transaction. At the meeting, after considering the recommendation of the Special Committee, our Board of Directors unanimously approved the terms of the financing with the Investors, and, subject to stockholder approval, authorized our company to enter into these transactions. Upon the execution of the Securities Purchase Agreement, the Special Committee was disbanded.
In its presentation at our Board of Directors meeting on November 8, 2004, Rothschild offered its analysis of the available alternatives and the merits of the financing with the Investors in light of the then existing alternatives. Rothschild advised our Board of Directors that the transaction with the Investors would, in summary:
Some of the negative considerations of the financing with the Investors identified by Rothschild include:
Our Board of Directors determined that the benefits of the financing proposal presented by the Investors outweighed its negative considerations due to the amount of financing provided by the Investors, the commitment to provide pre-closing financing, the higher degree of certainty of closure and the possibility to enhance stockholder value in connection with executing a successful turn-around strategy.
Participants’ Rights Pursuant to the June 2004 Private Placement
Pursuant to the terms of a securities purchase agreement, dated as of June 29, 2004, by and among our company and the Participants, the Participants have the right to purchase up to one-third (25% exclusive of SAC’s right) of the securities in the Principal Financing. As a result the Investors’ purchase obligation in the Principal Financing will be reduced to accommodate any election by any Participant to participate in the Principal Financing. The allocation of any such reduction shall be made ratably among the Investors. Nevertheless, in no event shall the purchase obligation of SAC be reduced to an amount that would be less than a majority of the securities to be purchased in the Principal Financing.
In an effort to provide us with additional liquidity through the closing date of the Principal Financing, we entered into an interim financing facility with certain of the Investors in the form of a $10,000,000 bridge term loan (the “Bridge Facility”). The Wet Seal, Inc. is the lead borrower under the Bridge Facility, with The Wet Seal Retail, Inc. and Wet Seal Catalog, Inc. as additional borrowers (collectively, the “Borrowers”). Wet Seal GC, Inc. is the
guarantor for the Bridge Facility (the “Guarantor”) and SAC serves as the Administrative and Collateral Agent.
The bridge loan bears interest at an annual rate of 25% fixed for the term of the Bridge Facility and interest accrues monthly, in arrears. The loan will become due and payable on the earlier of (i) February 28, 2005 (or as determined in SAC’s sole discretion, March 31, 2005 or April 29, 2005), (ii) the closing of the Principal Financing and (iii) the termination of the Securities Purchase Agreement. The Bridge Loan Participants have agreed to subordinate any acceleration claims with respect to the Bridge Facility pursuant to the terms of the Intercreditor and Lien Subordination Agreement dated as of November 9, 2004, by and among SAC Capital Associates, as Administrative Agent for the lenders and Collateral Agent under the Bridge Facility, the Borrowers, the Guarantor and Fleet Retail Group, Inc., as Administrative Agent and Collateral Agent under the Existing Credit Agreements (the “Intercreditor and Lien Subordination Agreement”).
The borrowings under the Bridge Facility are secured by a junior lien against all of the collateral that currently secures all of the borrowing obligations owed to the Borrowers’ current lenders (the “Existing Lenders”) under existing working capital and term loan credit facilities (the “Existing Credit Agreements”). The respective rights of the Existing Lenders and the lenders under the Bridge Facility in the shared collateral are set out in the Intercreditor and Lien Subordination Agreement.
At the closing of the Principal Financing, the aggregate purchase price for the securities to be issued to the Investors shall be reduced by the outstanding principal amount (together with accrued and unpaid interest) of the bridge loan.
Material Terms of the Convertible Notes
Pursuant to the terms of the Securities Purchase Agreement, we have agreed to issue $40,000,000 in aggregate principal amount of Convertible Notes to the Investors. For a complete description of the Convertible Notes, please see the Form of Initial Convertible Note attached as Exhibit 10.4 to our Transaction 8-K Report. The Convertible Notes may be issued pursuant to an indenture and/or related documents.
The Convertible Notes:
| • | will be subordinate to all senior secured indebtedness, will bepari passuwith the Series A Notes and the Series B Notes and will be senior to all other indebtedness of our company and our subsidiaries. |
Anti-dilution Protection
The conversion price of the Convertible Notes will have full-ratchet anti-dilution protection which means the conversion price will be adjusted from time to time in the event of the issuance of shares of our Class A Common Stock, or securities convertible or exercisable into shares of our Class A Common Stock, at prices below the conversion price of the Convertible Notes. In the event such an adjustment is required, the then current conversion price of the Convertible Notes will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Optional Redemption upon a Change of Control
Upon a “change of control” (as defined in the Form of Initial Convertible Note), the Investors will have the right to cause us to redeem all or any portion of the Convertible Notes at a price equal to the greater of:
To the extent not redeemed upon a “change in control,” each Investor shall have the right to cause the ultimate parent company of the acquiring or surviving company in the change of control to issue new notes in replacement of the Convertible Notes with terms (including, without limitation, conversion rights, security, rank, covenants and events of defaults) equivalent to those contained in the Convertible Notes.
Covenants
The Convertible Notes will impose certain customary affirmative and negative covenants upon our company and our subsidiaries, including but not limited to:
Events of Default
In connection with the Convertible Notes, an event of default includes, but is not limited to, the following events:
Material Terms of the Additional Investment Right Warrants
Pursuant to the terms of the Securities Purchase Agreement, we agreed to issue to the Investors Additional Investment Right Warrants. For a complete description of the terms of the Additional Investment Right Warrants please refer to the Form of Series A Additional Investment Right Warrant and the Form of Series B Additional Investment Right Warrant attached as Exhibits 10.8 and 10.9, respectively, to our Transaction 8-K Report. The Additional Investment Right Warrants may be issued pursuant to warrant agreements and/or related documents.
Series A and B Additional Investment Right Warrants
The Series A Additional Investment Right Warrants (the “Series A AIRs”) may be exercised for five (5) years following the date of issuance to acquire up to $9,900,000 in principal amount of additional Convertible Notes (the “Series A Notes”). The initial conversion price per share of our Class A Common Stock for the Series A Notes will be $1.65 (the “Series A Rights Conversion Price”).
The Series B Additional Investment Right Warrants (the “Series B AIRs”) may be exercised for up to three (3) years following the date of issuance to acquire up to $5,950,000 in principal amount of additional Convertible Notes (the “Series B Notes”). The initial conversion price per share of our Class A Common Stock for the Series B Notes will be $1.75 (the “Series B Rights Conversion Price”).
Mandatory Conversion of the Additional Investment Right Warrants
At our option, at any time after the six month and twelve month anniversaries of the issuance of the Series A AIRs and the Series B AIRs, respectively, we may require the exercise of the Additional Investment Right Warrants by the respective holders, in whole or in part. We must provide at least thirty (30) days prior written notice of our intention to compel the exercise of the Additional Investment Right Warrants. In addition, we must have satisfied the following conditions on each day during the period beginning three (3) months prior to the mandatory exercise date (the “Measuring Period”):
If we elect to compel the exercise of the Series A AIRs and/or the Series B AIRs, then the conversion prices for the Series A Notes and Series B Notes will be equal to the lower of (i) $1.65 and $1.75, respectively, and (ii) the “Current Market Price” of our Class A Common Stock at the time of the mandatory exercise. For purposes of the Additional Investment Right Warrants, “Current Market Price” has been defined to mean the arithmetic average of the volume weighted average price of our Class A Common Stock over the five (5) consecutive trading days ending on the third trading day immediately prior to the date of mandatory exercise.
Our right to force the exercise of the Additional Investment Right Warrants terminates on the third anniversary of the issuance date of these securities.
Anti-dilution Protection
The conversion prices of the Series A and Series B Notes will have full-ratchet anti-dilution protection which means the respective conversion prices will be adjusted from time to time following the issuance of shares of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective conversion prices of the Series A and Series B Notes. In the event such an adjustment is required, the then current price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Material Terms of the Warrants
Pursuant to the terms of the Securities Purchase Agreement, we have issued to the Investors Series A Warrants and have agreed to issue Series B Warrants, Series C Warrants and Series D Warrants upon the closing of the Principal Financing. The Warrants may be issued pursuant to warrant agreements and/or related documents.
Series A Warrants
The Series A Warrants (the “Series A Warrants”), issued pursuant to the Securities Purchase Agreement, may be exercised for the period beginning on the earlier of (i) the approval of our stockholders of this Proposal and Proposal 2 or (ii) May 9, 2005. The Series A Warrants may be exercised to purchase up to 2,300,000 shares of our Class A Common Stock at an exercise price per share equal to $1.75. The exercise period of the Series A Warrants terminates on November 9, 2008.
Series B, Series C and Series D Warrants
The Series B, Series C and Series D warrants will be issued at the closing of the Principal Financing with the Investors. The Series B Warrants may be exercised for a period of four (4) years following the date of issuance to purchase up to 3,400,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.25. The Series C Warrants may be exercised for a period of five (5) years following the date of issuance to purchase up to 4,500,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.50. The Series D Warrants may be exercised for a period of five (5) years following the date of their issuance to purchase up to 3,400,000 shares of our Class A Common Stock at an initial exercise price per share equal to $2.75.
Anti-dilution Protection
The exercise prices of the Warrants will also have full-ratchet anti-dilution protection which means the respective exercise prices of the Warrants will be adjusted from time to time following the issuance of shares of our Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock at prices below the respective exercise prices of the Warrants. In the event such an adjustment is required, the then current exercise price will be reduced to the price per share at which the Class A Common Stock has been issued or upon which the convertible security (e.g. options, warrants, convertible debt instruments) may be converted or exercised into Class A Common Stock in the future.
Material Terms of the Registration Rights Agreement
Pursuant to the terms of the Securities Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, whereby we granted to each Investor registration rights with respect to the resale of the Convertible Notes, the Additional Investment Right Warrants, the Warrants and the shares of our Class A Common Stock issuable upon the conversion and exercise of such securities.
Pursuant to the Registration Rights Agreement, we are required to file, no later than thirty (30) calendar days after the closing of the Principal Financing (the “Closing Date”) or the termination of the Securities Purchase Agreement (the “Termination Date”), a registration statement with the SEC on Form S-3. We have agreed to use our reasonable efforts to have the registration statement declared effective by the SEC within ninety (90) calendar days (or in the event the SEC reviews the registration statement and requires us to make modifications, 120 calendar days) after the Closing Date or the Termination Date. In the event that anyregistration on Form S-3 is unavailable, we are required to register the resale of them shouldthe securities on another appropriate form reasonably acceptable to the Investors and undertake to file a registration on Form S-3 as soon as such form is available.
In the event we (i) fail to file a registration statement by the applicable deadline, (ii) fail to have a registration statement declared effective by the applicable deadline, or (iii) due to a breach of our obligations under the Registration Rights Agreement, cause a registration statement to become unavailable to an Investor for the resale of covered securities (each a “Registration Delay”), we are required to pay, upon the occurrence of a Registration Delay and every thirtieth day thereafter until such Registration Delay is cured, to the applicable holder, an amount equal to two percent (2%) of the principal amount paid for any Convertible Note, Series A Note, Series B Note and shares of our Class A Common Stock issued pursuant to those securities, and two percent (2%) of the exercise price of a Warrant or related shares of Class A Common Stock issuable upon the exercise of a Warrant.
At any time after a registration statement has been declared effective by the SEC, we are entitled to delay the disclosure of material non-public information and thereby temporarily suspend the registration statement, if such disclosure is, in the good faith judgment of our Board of Directors, not in the best interest of our company, provided that no such grace period may exceed fifteen (15) consecutive days and the aggregate of such grace periods may not exceed thirty (30) days in any 365-day period. We will pay for the costs associated with any registration under the Registration Rights Agreement.
Rights of First Refusal for Future Equity Issuances
For a period of three years following the closing of the Principal Financing, the Investors will be granted a right of first refusal with respect to any equity or equity-linked financing by our company, subject to the
participation rights held by existing stockholders which were granted under the Securities Purchase Agreement, dated June 29, 2004, entered into in connection with the private placement of our Class A Common Stock.
The obligations of the Investors to consummate the Principal Financing described in this proxy statement are subject to a number of conditions, including the following:
For a detailed discussion of each of the conditions precedent to the closing of the Principal Financing, please refer to the Securities Purchase Agreement attached as Exhibit 10.1 to our Transaction 8-K Report.
Even if stockholder approval is obtained for the Principal Financing, the Principal Financing may not close if the closing conditions are not met or waived.
Consulting Agreements and Other Arrangements
We are currently negotiating the terms of a short-term consulting agreement with Michael Gold. Mr. Gold is a seasoned specialty retail executive who currently operates over 400 retail clothing stores in Canada and the United States. We intend to enter into a long term consulting arrangement with Mr. Gold prior to the Annual Meeting,closing of the proxyPrincipal Financing.
We have also entered into a short-term consulting agreement with RT Management & Consulting Services, LLC, of which Thomas Brosig is president. Pursuant to the consulting agreement, RT Management has been engaged to provide an on-site analysis of all non-merchandising departments, an analysis of administrative costs, employee and compensation issues, organizational structure and information systems, and a physical inspection of buildings, equipment and distribution centers.
Concurrently with this transaction, we are also reevaluating our merchandising history, the viability of each of our stores, the value of our real estate and leases and the strengths and weaknesses of our general operations. We are engaging consultants to assist in this analysis and will be votedpreparing a revised business plan in connection therewith, which will include the closing of certain stores.
Our Business Strategy Following the Principal Financing
The purpose of the Principal Financing and entering into arrangements with Michael Gold, Thomas Brosig and other management additions which may occur is to implement our strategy to return our company to profitability. We believe that the Principal Financing will provide us with the capital needed to effect necessary store closures while maintaining appropriate inventory levels at stores we intend to keep open as well as to absorb operating losses that may be incurred while we implement our plans. With regard to our merchandise, our merchandising strategy will focus on price, while increasing our sales per square foot by offering fresh inventory reflecting current fashion trends.
Class A Common Stock Ownership Limitation and Your Dilution
Pursuant to the terms of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, each holder is prohibited from converting or exercising any such securities if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended) more than 9.99% of our outstanding Class A Common Stock (or a lower percentage pursuant to notice from the applicable Investor).
However, assuming all of the shares of Class A Common Stock issuable upon conversion or exercise of the Convertible Notes or the Warrants were issued absent the ownership limitation agreed to by the Investors, your percentage equity ownership in our company would decrease significantly. In addition, the issuance of additional shares would significantly dilute your voting rights as a holder of our Class A Common Stock. The table below depicts our issued and outstanding shares of Class A Common Stock, Class B Common Stock and common stock equivalents as of November 11, 2004 and, on a pro forma basis, the Class A Common Stock potentially issuable under the terms of the Principal Financing.
Security | Number of Shares | Percent of Fully- Diluted Shares as of November 11, 2004 | Percent of Fully- Diluted Shares after giving effect to the Principal Financing | |||||
Class A Common Stock issued and outstanding | 34,660,657 | 76.4 | % | 33.7 | % | |||
Class B Common Stock issued and outstanding(1) | 1,500,000 | 3.3 | % | 1.5 | % | |||
Class A Common Stock issuable upon exercise of warrants issued in our June 29, 2004 private placement(2) | 2,109,275 | 4.6 | % | 2.1 | % | |||
Class A Common Stock issuable upon exercise of the Series A Warrants(3) | 2,300,000 | 5.1 | % | 2.2 | % | |||
Class A Common Stock issuable upon conversion of the Convertible Notes(4) | 26,666,666 | — | 26.0 | % | ||||
Class A Common Stock issuable upon exercise of the Series B, Series C and Series D Warrants(5) | 11,300,000 | — | 11.0 | % | ||||
Class A Common Stock issuable upon conversion of the Series A Notes(6) | 6,000,000 | — | 5.8 | % | ||||
Class A Common Stock issuable upon conversion of the Series B Notes(7) | 3,400,000 | — | 3.3 | % | ||||
Class A Common Stock available for issuance under existing stock option and stock purchase plans | 4,817,619 | 10.6 | % | 4.7 | % | |||
Class A Common Stock available for issuance under The Wet Seal, Inc. 2004 Stock Incentive Plan(8) | 10,000,000 | — | 9.7 | % |
| (1) | Under the terms of our Restated Certificate of Incorporation, as amended, a holder of our Class B Common Stock has the right to convert shares of our Class B Common Stock into shares of Class A Common Stock on a one for one basis and has the right to two votes per share. |
| (2) | The June 29, 2004 private placement warrants have an initial exercise price of $5.41. |
| (3) | The Series A Warrants were issued upon the execution of the Securities Purchase Agreement. |
| (4) | Assuming a conversion price of $1.50 per share for the Convertible Notes. |
| (5) | The Series B, Series C and Series D Warrants have initial exercise prices of $2.25, $2.50 and $2.75 per share, respectively. |
| (6) | The Series A Notes are issuable upon exercise of the Series A Additional Investment Right Warrants, assuming a conversion price of $1.65. |
| (7) | The Series B Notes are issuable upon exercise of the Series B Additional Investment Right Warrants, assuming a conversion price of $1.75. |
| (8) | We are seeking stockholder approval of The Wet Seal, Inc. 2004 Stock Incentive Plan in connection with the Principal Financing. |
YOU SHOULD BE AWARE THAT IF (I) ALL OF THE CONVERTIBLE NOTES, THE SERIES A NOTES, AND THE SERIES B NOTES ARE CONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP IN OUR COMPANY OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO 33.7%.
Although the number of shares of Class A Common Stock potentially issuable under the terms of the Principal Financing is significant, our Board of Directors has determined, in consultation with its advisors, that the financing alternative presented by the Investors represents the best alternative for our company in light of our financial condition.
Exclusivity Agreement and Payment of Expenses
We have agreed that during the period from the signing of the Securities Purchase Agreement until the closing of the Principal Financing, we will not, and will cause our directors, officers, agents, representatives, affiliates, stockholders and any other person acting on our behalf not to, directly or indirectly, (i) solicit offers, inquiries or proposals for, or entertain any offer, inquiry or proposal to enter into: (A) a substitute nomineemerger, consolidation or nominees designatedother business combination involving our company, (B) an acquisition of 5% or more of the then-outstanding equity securities of our company, (C) an acquisition of equity securities, or of debt securities or other securities convertible into or exchangeable for equity securities of our company, which would, after giving effect to such conversion or exchange, constitute more than 5% of the outstanding equity securities of our company, (D) the issuance of debt securities with no equity component or related equity component of, or other borrowing by, our company in an amount in excess of $10,000,000, (E) a sale, transfer, conveyance, lease or disposal of all or any significant portion of the assets of our company in one transaction or a series of related transactions (other than sales of inventory in the ordinary course of business), (F) a liquidation or dissolution of our company or the adoption of a plan of liquidation or dissolution by our company, (G) the occurrence of individuals who at the beginning of such period constituted the Board of Directors or other governing body of our company (together with any new directors whose election to such Board of Directors or whose nomination for election by our stockholders was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved), ceasing for any reason to constitute a majority of such Board of Directors then in office or (H) any other transaction in lieu of, or which would impede or prevent, the transactions contemplated by the Principal Financing documents (any of the foregoing, a “Competing Transaction”), or (ii) conduct any discussions or negotiations, or provide any information to (or any review information of) any other party, or enter into any agreement, arrangement or understanding, regarding, or in connection with, a Competing Transaction; provided, however, that nothing herein shall prevent our company from taking a position pursuant to certain rules promulgated under the Securities Exchange Act of 1934 (as amended) with regard to any unsolicited tender offer.
Irrespective of whether the Principal Financing is consummated or the Securities Purchase Agreement is terminated, we have agreed to pay all out-of-pocket costs, fees and expenses (including the fees and expenses of Schulte Roth & Zabel LLP, counsel for SAC and its affiliates) (“Expenses”) incurred by, or on behalf of, SAC in connection with the financing transaction, including, but not limited to, in connection with (i) any accounting, business, environmental, legal, or regulatory due diligence review of our company and our business and (ii) the revision, negotiation, execution and delivery of all Principal Financing documents and the Bridge Facility and any related documents, up to a maximum reimbursement of $600,000 (the “Fee Cap”). However, the Fee Cap will be increased if SAC determines that such amount does not reasonably reflect the actual or reasonably anticipated Expenses and our Board of Directors approves such increase (such approval not to be unreasonably withheld or delayed). Nevertheless, we will not be obligated to pay more than $250,000 in Expenses if we terminate the Securities Purchase Agreement pursuant to a material breach by the Investors having a right to acquire a majority of the Convertible Notes.
Nasdaq National Market Stockholder Approval Requirements and Vote Required
In most instances in which our Board of Directors authorizes the issuance of shares of Class A Common Stock or securities convertible or exercisable into shares of our Class A Common Stock, we are not required to seek the approval of stockholders. However, due to the significant dilution that could result from the issuance of our Class A Common Stock pursuant to the terms of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, we are required by our principal trading market, the Nasdaq National Market, to solicit stockholder approval. In particular, NASD Rule 4350 requires stockholder approval in the event of (i) the sale, issuance or potential issuance by the issuer of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which, together with sales by officers, directors or substantial
stockholders of the issuer, equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance and (ii) any transaction that may be deemed to be a change of control of the issuer.
Therefore, we need to obtain stockholder approval because the conversion or exercise, as applicable, of all of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, in accordance with their respective terms, would result in the issuance of more than 20% of our Class A Common Stock and the effect of such issuance of our Class A Common Stock could be deemed for purposes of applicable NASD rules to be a change of control of our company.
The affirmative vote of the holders of a majority of a quorum of the issued and outstanding shares of our voting stock present in person or represented by proxy and entitled to vote at the Special Meeting will be required to approve this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.
CHARTER AMENDMENT TO INCREASE
THE NUMBER OF AUTHORIZED SHARES
OF OUR CLASS A COMMON STOCK
Purpose of the Share Increase Amendment
After taking into consideration our current outstanding equity obligations, together with our obligations under the Securities Purchase Agreement described in this proxy statement, our Board of Directors determined that it is necessary to amend our Restated Certificate of Incorporation, as amended (“Restated Certificate of Incorporation”) to increase the number of directors mayshares of our Class A Common Stock authorized for issuance. Currently, we do not have a sufficient number of shares of our Class A Common Stock authorized to meet the maximum number of shares we would be reduced accordingly.
The following table sets forth information regardingrequired to issue if the nominees for
director:
Our Restated Certificate of Incorporation currently permits us to issue up to 72,000,000 shares of capital stock, of which 2,000,000 shares are not also directorsdesignated as preferred stock, having a par value of $0.01 per share, 60,000,000 shares are set
forth below:
At the Special Meeting, we will ask our stockholders to approve an amendment to our Restated Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock from 60,000,000 to 150,000,000. In order to effect this change, the total number of shares of common stock authorized in our Restated Certificate of Incorporation would be increased from 70,000,000 to 160,000,000 and the total number of capital stock authorized in our Restated Certificate of Incorporation, would be increased from 72,000,000 to 162,000,000.
In addition to our obligations under the securities to be issued to the Investors, we may require that additional shares of our capital stock be available for acquisitions and other corporate purposes, such as stock splits, recapitalizations and in connection with the anti-dilution protection afforded to the holders of the Convertible Notes, Series A and Series B Notes and the Warrants. As a result, our Board of Directors methas deemed it advisable to seek approval of additional shares of capital stock for these purposes. While there are no acquisitions pending which would involve the issuance of such additional shares, we from time to time consider potential acquisitions, some or took action by written consent eight timesall of which may involve the issuance of shares of our capital stock.
The text of the proposed amendment to the Restated Certificate of Incorporation is attached to this proxy statement as Exhibit A.
If our stockholders do not approve the amendment to our Restated Certificate of Incorporation, we will be unable to consummate the financing transactions with the Investors which would significantly impact our ability to survive as a going concern.
Effect of the Increase in the fiscal year ended January 30, 1999. EachAuthorized Number of Shares of Class A Common Stock
Until issued, the increase in the number of authorized shares of Class A Common Stock will not have any immediate effect on your rights as an existing stockholder. Moreover, pursuant to the terms of the directors attendedConvertible Notes, Series A Notes, the Series B Notes and the Warrants each holder is prohibited from converting or exercising any such securities if as a result such holder (together with its affiliates) would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended) at least
75%any time more than 9.99% of our outstanding Class A Common Stock.NEVERTHELESS, YOU SHOULD BE AWARE THAT IF (I) ALL OF THE CONVERTIBLE NOTES, THE SERIES A NOTES, AND THE SERIES B NOTES ARECONVERTED, (II) THE WARRANTS ARE EXERCISED IN FULL AND (III) ALL 10,000,000 SHARES OF OUR CLASS A COMMON STOCK ARE ISSUED UNDER OUR NEW PLAN, THE CURRENT STOCKHOLDERS’ PERCENTAGE OWNERSHIP IN OUR COMPANY OF OUR CLASS A COMMON STOCK, ON A FULLY DILUTED BASIS, WILL BE REDUCED FROM 76.4% TO33.7%. Please refer to our discussion in Proposal 1 under the heading “Class A Common Stock Ownership Limitation and Your Dilution” for analysis of your potential dilution.
Although the number of shares of Class A Common Stock potentially issuable under the terms of the Principal Financing is significant, our Board of Directors has determined, in consultation with its advisors, that the financing alternative presented by the Investors represents the best alternative for our company in light of our financial condition.
Under Delaware law, in order to approve this proposal, we will need (i) the affirmative vote of the holders of a majority of the votes attributable, collectively, to the holders of our outstanding Class A Common Stock and Class B Common Stock entitled to vote at the Special Meeting and (ii) due to our intention to increase the number of authorized shares of Class A Common Stock, the affirmative vote of the holders of a majority of outstanding shares of Class A Common Stock entitled to vote at the Special Meeting, voting together as a separate class.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.
APPROVAL OF THE WET SEAL, INC. 2004 STOCK INCENTIVE PLAN
At our Board of Directors meeting, convened to approve our transactions with the Investors, the Board of Directors meetingsadopted the Plan, subject to our stockholder approval at the Special Meeting. The Plan was adopted in order to assist our company in attracting management with turn-around and their respective committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Executive Committee consistingmerchandising expertise. In addition, the Plan will be used to grant awards to our officers, employees, directors and consultants in order to provide such individuals with (i) additional incentive to work to increase the value of Irving Teitelbaum,
Kathy Bronsteinour Class A Common Stock and Edmond Thomas. The Executive Committee was formed(ii) a stake in April
1990. Its primary responsibility isthe future of our company. We are asking you to overseeapprove the execution of lease
commitments made by the Company between meetingsadoption of the BoardPlan and the reservation of Directors.
a total of 10,000,000 shares of our Class A Common Stock for issuance thereunder.
The Company has an Audit Committee consisting of Gerald Randolph (Chairman),
George H. Benter, Jr. and Wilfred Posluns. The Audit Committee is responsible
for reviewing, as it shall deem
4
appropriate, and recommending to the Board of Directors internal accounting and
finance controlsPlan provides for the Companyaward of options, whether nonqualified or incentive, stock appreciation rights, restricted common stock, restricted common stock units, performance shares, performance share units and accounting principles and auditing
practices and procedurescash bonuses.
In order to be employed in the preparation and review of the
Company's financial statements. The Audit Committee is also responsiblequalify for recommending to the Board of Directors independent public accountants to audit
the annual financial statements of the Company and scope of the audit to be
undertaken by the accountants.
The Company has no nominating committee. Nominations are proposed by the
Executive Committee of the Board.
The Company has a Compensation Committee consisting of Irving Teitelbaum,
Wilfred Posluns and George H. Benter, Jr. The Compensation Committee is
responsible for establishing general compensation policies and specific
compensation levels for the Company's executive officers. Effective April 1999,
the Compensation Committee has created an Incentive Compensation Subcommittee
consisting of Wilfred Posluns and George H. Benter, Jr. to address all issues
before the Compensation Committee that require decisions by directors who
qualify as outside directorsdeductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), the Plan, including, without limitation, the performance goals for determining performance awards set forth in the Plan, must be approved by our stockholders. In addition, we are seeking your approval of the Plan pursuant to NASD Rule 4350(A) which requires our company to obtain stockholder approval when a stock option plan is established.
A general description of the principal terms of the Plan is set forth below. However, this summary does not purport to be a complete description of all of the provisions of the Plan, as proposed to be adopted, which is attached to this proxy statement as Exhibit B.
Subject to adjustment for certain corporate events, the total of the number of shares of Class A Common Stock which shall be available for the grant of awards (including incentive stock options) under the Plan shall not exceed 10,000,000 shares of Class A Common Stock; provided, that, for purposes of this limitation, any Class A Common Stock subject to an option which is canceled or expires without exercise shall again become available for award under the Plan. Upon forfeiture of awards in accordance with the provisions of the Plan and the terms and conditions of the award, such shares shall again be available for subsequent awards under the Plan. Subject to adjustment in accordance with the Plan, no employee shall be granted, during any one (1) year period, options to purchase more than [_],000,000 shares of our Class A Common Stock and, the number of shares of Class A Common Stock subject to any awards other than options shall not exceed [_],000,000 shares of Class A Common Stock. Shares of Class A Common Stock available for issue or distribution under the Plan shall be authorized and unissued shares, treasury shares or shares reacquired by us in any manner.
The Compensation Committee (the “Committee”) of our Board of Directors will administer the Plan. The Committee is currently comprised of Henry Winterstern, Howard Gross and Walter Loeb, as Chairman, each of who are non-employee directors within the meaning of Rule 16b-3 as promulgated under Section 16(b)16 of the Securities Exchange Act of 1934, as amended. See "Reportamended, and are also outside directors within the meaning of Section 162(m) of the CompensationInternal Revenue Code of 1986, as amended. The Committee will (i) approve the selection of participants, (ii) determine the type of awards to be made to participants, (iii) determine the number of shares of Class A Common Stock subject to awards, (iv) determine the terms and conditions of any awards granted thereunder (including, but not limited to, any restriction and forfeiture conditions on such awards) 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 thereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any award in the manner and to the extent it shall deem desirable to carry it into effect.
Employees, officers, directors and consultants of our company and our subsidiaries selected by the Committee are eligible to receive grants of awards under the Plan. Only employees of our company and our subsidiaries may be granted incentive stock options.
Awards under the Plan may consist of options, stock appreciation rights, restricted common stock, restricted common stock units, performance shares, performance share units or cash bonuses.
Both nonqualified stock options or Nonqualified Stock Options and “incentive stock options” (“ISOs”) may be granted under the Plan, collectively referred to as the Options. The terms of any such Option shall be set forth in an Option agreement and shall be consistent with the following:
The exercise price per share of our Class A Common Stock to be purchased pursuant to any Option shall be fixed by the Committee at the time such Option is granted and shall not be less than the fair market value of a share of Class A Common Stock on the date the Option is granted; provided, however, in the case of ISOs granted to an employee owning stock possessing more than 10% of the total combined voting power of all classes of shares of our company and its subsidiaries, the price per share specified in an Option agreement shall not be less than 110% of the fair market value per share of Class A Common Stock on the date of grant.
The term of each Option will be determined by the Committee, but may not exceed ten (10) years from the date of grant; provided, however, that in the case of ISOs granted to 10% stockholders, the term of such Option shall not exceed five (5) years from the date of grant.
An Option shall vest and become exercisable at a rate determined by the Committee on Executive Compensation."the date of grant, with a minimum vesting period of one (1) year.
Options may be exercised, in whole or in part, by giving written notice of exercise to our company in a form approved by us specifying the number of shares of Class A Common Stock to be purchased. Such notice shall be accompanied by the payment in full of the exercise price. The Company hasexercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of Class A Common Stock held by the optionee for at least six (6) months prior to exercise (or such longer or shorter period as may be required to avoid a charge to earnings for financial accounting purposes) or the attestation of ownership of such shares, in either case, if so permitted by us, (iii) if established by us, through a “same day sale” commitment from the optionee and a broker-dealer selected by us that is a member of the National Association of Securities Dealers, or an NASD Dealer, whereby the optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased sufficient to pay for the total exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the total exercise price directly to us, (iv) through additional methods prescribed by the Committee or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. Options may not be exercised for fractional shares of our Class A Common Stock. A participant’s subsequent transfer or disposition of any Class A
Common Stock acquired upon exercise of an Option shall be subject to any federal and state laws then applicable, specifically securities law, and the terms and conditions of the Plan.
No Option granted under the Plan shall be amended to reduce the exercise price under such Option, or surrendered in exchange for a replacement Option having a lower purchase price per share; provided, that, this prohibition shall not restrict or prohibit any adjustment permitted under the Plan in connection with certain corporate events or changes in the Class A Common Stock.
Stock Appreciation Rights “SARs”
The Plan permits the Committee to award from time to time SARs to an eligible participant either at the time of the grant of an Option or thereafter by amendment to the option. A SAR is the right to receive the increase between the grant price and the market price of our Class A Common Stock on the date of settlement in Class A Common Stock or cash.
The Plan permits the Committee to award restricted Class A Common Stock under the Plan to eligible participants. The Committee may also award restricted Class A Common Stock in the form of restricted common stock units having a value equal to an identical number of shares of Class A Common Stock. Payment of restricted common stock units shall be made in Class A Common Stock or in cash or in a combination thereof (based upon the fair market value of the Class A Common Stock on the day the restricted period expires), all as determined by the Committee in its discretion. Restricted Class A Common Stock awards shall vest at a rate determined by the Committee on the date of grant, with a minimum vesting period of one (1) year.
Under the Plan, the Committee has the authority to grant Performance Awards which provide participants with the right to an award based upon the achievement of one or more levels of performance required to be attained with respect to a Performance Goal set by the Committee during a Performance Period or the Performance Objective. Performance shares may be granted in the form of actual shares of Class A Common Stock or common stock units having a value equal to an identical number of shares of Class A Common Stock. In addition, the Committee may make cash bonuses to participants based on the Performance Objectives established by the Committee (performance shares and performance cash bonuses collectively referred to as “Performance Awards”). The Plan contemplates that the following Performance Goals may be selected by the Committee and shall mean or may be expressed in terms of one or more of the following business criteria: revenue, earnings before interest, taxes, depreciation and amortization or EBITDA, funds from operations, funds from operations per share, operating income, pre or after tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, share price performance, improvements in our 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. For purposes of the Plan, a Performance Period shall mean the calendar year, or such other shorter or longer period designated by the Committee, during which performance will be measured in order to determine a participant’s entitlement to receive payment of a Performance Award.
The Committee shall establish the Performance Objective for each Performance Award, consisting of Walter F. Loebone or more business criteria permitted as Performance Goals under the Plan, one or more levels of performance with respect to each such criterion, and George
H. Benter, Jr.the amount or amounts payable or other rights that the participant will be entitled to upon achievement of such levels of performance. The OptionPerformance Objective shall be established by the Committee is responsible for granting stock optionsprior to executive officers and other key employees whose contributions are considered
importantor reasonably promptly following the inception of a Performance Period but, to the long-term successextent
required by Section 162(m) of the CompanyCode, by no later than ninety (90) days after the commencement of the Performance Period or the day prior to the date on which 25% of the Performance Period has elapsed.
Subject to adjustment for certain corporate events, the maximum number of Performance Shares subject to any award to any individual who is a covered employee for purposes of Section 162(m) of the Code (“Covered Employee”) is [_],000,000 for each twelve (12) months during the Performance Period (or, to the extent the award is paid in cash, the maximum dollar amount of any such award is the equivalent cash value, based on the fair market value of the common stock, of such number of shares of Class A Common Stock on the last day of the performance period). If the Performance Award is a cash bonus, a participant shall not be granted performance cash bonuses for all of the Performance Periods commencing in a calendar year that permit the participant, in the aggregate, to earn a cash payment in excess of $3,000,000 per calendar year.
A Performance Award to a participant who is a Covered Employee shall (unless the Committee determines otherwise) provide that in the event of termination of continuous service prior to the end of the Performance Period for any reason, such award will be payable only if the applicable Performance Objectives are achieved and to the extent, if any, as the Committee shall determine. The Committee may reduce or eliminate the amount of payment with respect to any Performance Award to a Covered Employee notwithstanding the achievement of specified Performance Objectives, however, no such adjustments shall be made that would adversely impact a participant following a “Change of Control” (as defined in the Plan).
No payments will be made with respect to any Performance Award unless and until the Committee certifies the achievement of the Performance Goals.
Unless otherwise provided in an award agreement, upon the occurrence of a Change of Control (as defined in the Plan) in which awards are not terminated in accordance with the Plan, all Options, restricted stock and SARs granted prior to such Change of Control shall automatically become vested and exercisable in full and all restrictions or performance conditions, if any, on any other awards shall automatically lapse.
The Plan provides that in the event of certain corporate events or changes in the common stock, awards and the number of shares under the Plan may be adjusted to reflect such event. Any such adjustment made to an ISO shall be made in accordance with Section 424(a) of the Code unless otherwise determined by the Committee.
In the event of a serious breach of conduct by a participant or former participant (including, without limitation, any conduct prejudicial to or in conflict with our company or any subsidiary), the Committee may (i) cancel any outstanding award granted to such participant or former participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within one (1) year following the exercise or payment of an award, require such participant or former participant to repay our company any gain realized or payment received upon the exercise or payment of such award (with such gain or payment valued as of the date of exercise or payment).
Our Board of Directors may terminate or amend the Plan in any respect at any time, except that, no amendment will be made without stockholder approval, if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and, except as otherwise provided in the Plan with respect to adjustments in connection with certain corporate events or changes in our Class A Common Stock, no amendment will be made that would adversely affect the rights of a participant without such participant’s written consent.
General Federal Tax Consequences
The following is a summary of the material federal tax consequences of receiving Options under the Plan and is based upon an analysis of the present provisions of the Code and the regulations promulgated thereunder, all of which are subject to change. A participant may also be subject to state and local taxes, the consequences of which are not discussed herein, in the jurisdiction in which he or she works and/or resides. This summary is for general information and is not tax advice.
Subject to a limited number of exceptions, Section 162(m) of the Code denies a deduction to a publicly held corporation for payments of remuneration to certain employees to the extent the employee’s remuneration for the taxable year exceeds $1,000,000. For this purpose, remuneration attributable to Options is included within the $1,000,000 limitation. However, to the extent that certain procedural requirements are met (e.g., the Plan is approved by our stockholders, grants are made by the Committee, the exercise price is equal to the fair market value of the underlying shares upon grant, etc.), gain from the exercise of Options should not be subject to the $1,000,000 limitation. We have attempted to structure the Plan in such a manner that the remuneration attributable to the Options will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the Internal Revenue Service or an opinion of counsel regarding this issue.
An individual receiving Nonqualified Stock Options should not recognize taxable income at the time of grant. A participant should generally recognize ordinary compensation income in an amount equal to the excess, if any, in the fair market value of the Option shares on exercise of the Nonqualified Stock Options over the exercise price thereof. In general, subject to the limitations set forth in Section 162(m) and discussed above, our company is entitled to deduct from its taxable income the amount that the participant is required to include in ordinary income at the time of such inclusion.
An individual granted an ISO will not generally recognize taxable income at the time of grant or, subject to certain conditions, at the time of exercise, although he or she may be subject to alternative minimum tax. In general, if a disqualifying disposition should occur (i.e., the shares acquired upon exercise of the Option are disposed of within the later of two years from the date of grant or one year from the date of exercise), a participant will generally recognize ordinary compensation income in the year of disposition in an amount equal to the excess, if any, of the fair market value of the Option shares at the time of exercise (or, if less, the amount realized on disposition), over the exercise price thereof. Our company is not entitled to any deduction on account of the grant of the ISOs or the participant’s exercise of the option to acquire common stock. However, in the event of a subsequent disqualifying disposition of such shares of Class A Common Stock acquired pursuant to the Company's
long-term incentive plans.
Duringexercise of an ISO under circumstances resulting in taxable compensation to the fiscal year ended January 30, 1999,participant, subject to the limitations set forth in Section 162(m) and discussed above, in general, our company should be entitled to a tax deduction equal to the amount treated as taxable compensation to the participant.
Under certain circumstances, the accelerated vesting or exercise of Options or the accelerated lapse of restrictions with respect to other awards in connection with a Change of Control (as defined in the Plan) might be deemed an “excess parachute payment” for purposes of the golden parachute tax provisions of Section 280G of the Code. To the extent it is so considered, the grantee may be subject to a 20% excise tax and our company may be denied a federal income tax deduction.
If this Proposal is adopted, our company intends to file a registration statement covering the offering of the shares of Class A Common Stock under the Plan with the SEC pursuant to the Securities Act of 1933, as amended.
The amounts payable under the Plan for 2004 which may be received by each of (a) our executive officers named in the Summary Compensation Table below, (b) our executive officers as a group and (c) our employees who are not executive officers as a group, are not currently determinable.
The affirmative vote of the holders of a majority of the issued and outstanding shares of our voting stock present in person or represented by proxy and entitled to vote at the Special Meeting will be required to approve this proposal.
Board Recommendation
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THIS PROPOSAL.
PRINCIPAL HOLDERS
The following table sets forth information regarding the beneficial ownership of our company’s Class A Common Stock as of November 19, 2004 for (i) each person known to us to have beneficial ownership of more than 5% of class of our capital stock; (ii) each of our directors; (iii) each of the Named Executive Committee met
or took action by written consent eight times, the Compensation Committee met or
took action by written consent one time, the Audit Committee met or took action
by written consent three timesOfficers (as defined below); and the Option Committee met or took action by
written consent four times.
5
Name | Beneficial of Shares of Class A | % Beneficial Ownership of Shares of Class A | Beneficial of Class B(1) | % Beneficial Ownership of Shares of Class B | % Beneficial Ownership of all Classes of Stock | Percent of Vote of all Classes of Stock | ||||||
S.A.C. Capital Associates, LLC(2) c/o S.A.C. Capital Advisors, LLC 72 Cummings Point Road Stamford, CT 06902 | 3,646,444 | 9.99%(3) | — | — | 9.6% | 9.2% | ||||||
Martin D. Gruss(4) 667 Madison Avenue New York, NY 10021 | 3,000,000 | 8.7% | — | — | 8.3% | 8.0% | ||||||
Craig Effron(5) 660 Madison Avenue New York, NY 10021 | 2,600,000 | 7.5% | — | — | 7.2% | 6.9% | ||||||
Curtis Schenker(5) 660 Madison Avenue New York, NY 10021 | 2,600,000 | 7.5% | — | — | 7.2% | 6.9% | ||||||
Daniel L. Nir(6) 950 Third Avenue, 29th Floor New York, NY 10022 | 2,550,000 | 7.4% | — | — | 7.0% | 6.6% | ||||||
Douglas A. Hirsch(7) c/o Seneca Capital 950 Third Avenue, 29th Floor New York, NY 10022 | 2,131,700 | 6.2% | — | — | 5.9% | 5.7% | ||||||
Riverview Group, LLC(8) 666 Fifth Avenue New York, NY 10103 | 2,033,944 | 5.8% | — | — | 5.5% | 5.3% | ||||||
Stephen Gross Holdings Inc.(9) 1604 St. Regis Blvd. Dorval, Quebec, Canada H9P1H6 | — | — | 748,500 | 49.9% | 2.1% | 4.0% | ||||||
Irving Teitelbaum(10) | 485,834 | 1.4% | 751,500 | 50.1% | 3.4% | 5.2% | ||||||
Howard Gross | — | — | — | — | — | — | ||||||
Stephen Gross(9) | — | — | 748,500 | 49.9% | 2.1% | 4.0% |
Douglas C. Felderman(11)(12) Henry Winterstern Joseph Deckop(11)(12) Jennifer Pritchard(11)(12) Walter F. Loeb(11) Wilfred Posluns(11) Alan Siegel(11) All directors and officers as a group (10 individuals)(11)(12) 6,668 * — — * * — — — — — — 19,000 * — — * * 31,100 — — * * 87,084 * — — * * 54,084 * — — * * 54,084 * — — * * 737,854 2.1% 1,500,000 100.0% 6.1% 9.7%
| * | Less than 1% |
| (1) | Shares of Class B Common Stock of our company have two (2) votes per share. Under our company’s Restated Certificate of Incorporation, as amended, a Class B stockholder has the right at any time to convert any share of Class B Common Stock into one share of Class A Common Stock. |
| (2) | As reported in a Schedule 13D dated November 9, 2004, each of S.A.C. Capital Advisors, LLC, S.A.C. Capital Management, LLC and Steven A. Cohen may be deemed to be the beneficial owner of 3,646,444 shares of Class A Common Stock (including 1,839,819 shares of Class A Common Stock issuable upon exercise of warrants) held for the account of SAC, a private investment limited liability company. S.A.C. Capital Advisors, LLC and S.A.C. Capital Management, LLC serve as investment manager to SAC and Steven A. Cohen acts as the principal of both S.A.C. Capital Advisors, LLC and S.A.C. Capital Management, LLC. Each of S.A.C. Capital Advisors, LLC, S.A.C. Capital Management, LLC and Steven A. Cohen disclaims beneficial ownership of the securities held by SAC. |
| (3) | SAC Capital Associates, as a holder of the Convertible Notes, the Series A Notes, the Series B Notes and the Warrants, will be prohibited from converting or exercising any of such securities if as a result it would beneficially own (as that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934 (as amended)) more than 9.99% of our outstanding Class A Common Stock pursuant to an ownership limitation set forth in the document evidencing the respective securities. |
| (4) | As reported in a Schedule 13G dated November 11, 2004, each of Martin D. Gruss, Trust FBO Martin D. Gruss, Gruss & Co., Inc. and Gruss Asset Management, L.P. (“Gruss LP”) may be deemed to be the beneficial owner of 3,000,000 shares of our Class A Common Stock. This number includes (i) 1,500,000 shares directly held by Gruss Global Investor Master Fund, Ltd. (“GGI”) and (ii) 1,500,000 shares directly held by Gruss Assets Management II, L.P. (“Gruss II, LP”). Gruss LP, a Delaware limited partnership serves as the investment manager to, and has investment discretion over the securities held by, GGI, a Cayman Islands exempted company with respect to common stock directly held by GGI. Gruss LP also serves as the general partner of Gruss II, LP, a Delaware limited partnership which serves as the investment manager to and has investment discretion over the securities held by, Gruss Distressed Opportunity Master Fund, Ltd., a Cayman Islands exempted company (“GDO”). Gruss & Co., Inc., a New York corporation serves as the general partner to Gruss LP with respect to the common stock directly owned by GGI and GDO. Trust FBO Martin D. Gruss, dated April 25, 1988, a Florida trust is the sole shareholder of Gruss & Co., Inc., with respect to the common stock directly owned by GGI and GDO. Martin D. Gruss serves as the trustee of the Trust FBO Martin D. Gruss with respect to the common stock directly owned by GGI and GDO. |
| (5) | As reported in a Schedule 13G dated August 27, 2004, each of Craig Effron and Curtis Schenker may be deemed to be the beneficial owner of 2,600,000 shares of our Class A Common Stock. This number includes (i) 1,000,000 shares beneficially owned by Scoggin Capital Management, L.P. II, (ii) 1,000,000 shares beneficially owned by Scoggin International Fund, Ltd., (iii) 300,000 shares beneficially owned by Scoggin Worldwide Fund, Ltd. and (iv) 1,600,000 shares beneficially owned by Scoggin, LLC. The general partner of Scoggin Capital Management, L.P. II is S&E Partners, L.P., a limited partnership organized under the laws of Delaware. Scoggin, Inc., a corporation organized under the laws of Delaware, is the sole general partner of S&E Partners, L.P. Scoggin, LLC is the investment advisor of Scoggin International Fund, Ltd. and Scoggin Worldwide Fund, Ltd. Craig Effron and Curtis Schenker are the stockholders of Scoggin, Inc and the managing members of Scoggin, LLC. |
| (6) | As reported in a Schedule 13G dated September 29, 2004, Daniel L. Nir may be deemed to be the beneficial owner of 2,550,000 shares of our Class A Common Stock. This number includes (i) 200,000 shares of Class A Common Stock beneficially owned by a private limited liability company, of which Mr. Nir is the Managing Member, (ii) 975,000 shares of Class A Common Stock beneficially owned by two |
private investment partnerships, for which P&S Capital Partners, LLC is the General Partner, (iii) 975,000 shares of Class A Common Stock beneficially owned by a private investment corporation, for which P&S Capital Management, LLC is the Investment Manager, and beneficially owned by a private investment corporation, for which P&S Capital Management, LLC shares voting and dispositive power and (iv) 100,000 shares beneficially owned by a privately managed account, for which PAGS Investing, LLC shares voting power and dispositive power. Mr. Nir is the Managing Member of P&S Capital Partners, LLC, P&S Capital Management, LLC and P&S Credit Management, LLC. Mr. Nir is a Managing Member of PAGS Investing, LLC. |
| (7) | As reported in a Schedule 13G dated October 8, 2004, Douglas A. Hirsch may be deemed to be the beneficial owner of 684,400 shares of Class A Common Stock. This number includes (i) 2,131,700 shares of Class A Common Stock beneficially owned by two private investment partnerships, of which Seneca Capital Advisors, LLC is the sole general partner and (ii) 1,447,300 shares of Class A Common Stock beneficially owned by (a) a private investment corporation, of which Seneca Capital Investments, LLC, is the sole investment manager and (b) a privately managed account of which Seneca Capital Investments, LLC shares voting power and dispositive power. Each of Seneca Capital Advisors, LLC and Seneca Capital Investments, LLC may be deemed to be controlled by Mr. Hirsch because he is the Manager of each entity. |
| (8) | As reported in an Amendment No.1 to a registration statement on Form S-3 filed by our company on August 24, 2004, this amount includes 1,506,625 shares of our Class A Common Stock and 527,319 shares of our Class A Common Stock issuable upon exercise of warrants issued in our June 2004 private placement. Millennium Holding Group, L.P., a Delaware limited partnership, is the sole member of Riverview Group, LLC. Millennium Management, LLC, a Delaware limited liability company, is the general partner of Millennium Holding Group, L.P. and, consequently, has voting control and investment discretion over securities owned by Millennium Holding Group, L.P. and by Riverview Group, LLC. Israel A. Englander is the sole managing member of Millennium Management, LLC. As a result, Israel A. Englander may be considered the beneficial owner of any securities deemed to be beneficially owned by Millennium Management, LLC. The foregoing should not be construed in and of itself as an admission by any of Millennium Holding Group, L.P., Millennium Management, LLC or Israel A. Englander as to beneficial ownership of the securities owned by Riverview Group, LLC. |
| (9) | Stephen Gross Holdings Inc. is controlled by Mr. Gross. As reported in a Schedule 13D dated July 15, 2004, Stephen Gross Holdings Inc. and Mr. Gross may each be deemed to beneficially own 748,500 shares of Class B Common Stock held for the account of Stephen Gross Holdings Inc. |
| (10) | The number of shares of Class A Common Stock of our company includes options to acquire 485,834 shares of Class A Common Stock held by First Canada Management Consultants Limited, which options are currently exercisable or exercisable within 60 days of October 31, 2004. As reported in a Schedule 13D dated July 15, 2004, First Canada Management Consultants Limited is wholly owned by Teitelbaum Investments Ltd., a Canadian company, of which Mr. Irving Teitelbaum is the majority stockholder. As a result, Mr. Teitelbaum may be deemed to beneficially own (i) 485,834 shares of Class A Common Stock issuable upon the exercise of such options and (ii) 751,500 shares of Class B Common Stock held for the account of Teitelbaum Holdings Inc. Teitelbaum Holdings Inc. is controlled by Mr. Teitelbaum. |
| (11) | Shares beneficially owned include options representing the right, within 60 days of November 11, 2004, to purchase the following shares of Class A Common Stock of our company: Mr. Felderman – 3,334; Ms. Pritchard – 27,100; Mr. Deckop – 15,000; Mr. Loeb – 87,084; Mr. Posluns – 54,084; and Mr. Siegel – 54,084. The shares of Class A Common Stock of our company that Mr. Teitelbaum and Mr. Gross may be beneficially deemed to own include shares held for the account of First Canada Management Consultants Limited, Teitelbaum Holdings Inc. and Stephen Gross Holdings Inc. See footnotes (9) and (10) above. |
| (12) | Shares beneficially owned include restricted stock that will vest within 60 days of November 11, 2004 in the following amounts: Mr. Deckop – 4,000; Mr. Felderman – 3,334; and Ms. Pritchard – 4,000. |
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation (cash and non cash), for thefiscal years 2003, 2002 and 2001, for (i) each person who served as Chief Executive Officer, and(ii) the four other most highly compensated executive officers ("named executive officers") who earned in excess of $100,000 per annum
during any of the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
| Annual Compensation | Long-Term Annual Compensation Awards | |||||||||||||||||
Name and Principal Position | Fiscal | Salary($) | Bonus($) | Other Annual Compensation($) | Restricted Stock Awards($) | Securities Underlying Stock Options | LTIP Payouts | All other Compensation | ||||||||||
| (1) | (2) | (3) | ||||||||||||||||
Peter D. Whitford Former Chief Executive Officer (14) | 2003 2002 2001 | 420,192 — — | — — — | | — — — | — — — | 300,000 — — | — — — | 202,328 — — | (7) | ||||||||
Irving Teitelbaum (15)(23) Former Chief Executive Officer | 2003 2002 2001 | 23,077 — — | — — — | | — — — | — — — | — — | — — — | — — — | | ||||||||
Kathy Bronstein(16) Former Chief Executive Officer | 2003 2002 2001 | 320,210 1,050,100 865,475 | — 228,270 1,750,700 | (5) (6) | — — — | 92,098 32,783 67,201 | — 150,000 225,000 | — — — | 957,259 90,779 229,063 | (8) (9) (10) | ||||||||
Jennifer Pritchard(17) Divisional President of Arden B. | 2003 2002 2001 | 315,000 87,231 — | — — — | | — — — | — — — | 6,300 50,000 — | — — — | 6,000 1,846 — | (11) (11) | ||||||||
Michael Relich(18) Former Chief Information Officer and Senior Vice President of MIS & E-Commerce | 2003 2002 2001 | 228,846 211,576 69,231 | 25,000 25,000 10,000 | (4) (5) (6) | — — — | — — — | 82,500 10,000 37,500 | — — — | 6,000 6,231 2,308 | (11) (11) (11) | ||||||||
Susan Powers(19) Vice President, Director of Stores, Wet Seal Division | 2003 2002 2001 | 223,076 160,769 — | — — — | | — — — | — — — | 19,400 20,000 — | — — — | 13,000 29,500 — | (11) (11) | ||||||||
Long-Term Annual Compensation Awards Name and Principal Position Other Annual Compensation($) Restricted Stock Awards($) Securities Underlying Stock LTIP Payouts All other Compensation Pamela O’Connor Senior Vice President, Human Resources Greg Scott(20) Former Divisional President of Arden B. Susan O’Toole(21) Former Chief Merchandise Officer, Wet Seal Division Annual Compensation Fiscal Salary($) Bonus($)
Options (#)
($)
($) (1) (2) (3) 2003
2002
2001 163,077
161,760
133,913 20,000
28,000
10,000(4)
(5)
(6) —
—
— —
—
— 35,700
7,500
11,250
—
—
— —
—
—
2003
2002
2001 456,342
450,000
350,000 —
—
200,000
(6) —
—
— —
—
— 39,000
20,000
105,000
(22)
—
—
— 6,200
6,000(11)
(11) 2003
2002
2001 383,432
337,500
— —
—
—
—
—
— —
—
— 169,000
200,000
—
—
—
— 25,074
21,875
— (12)
(13)
| (1) | While the named executive officers enjoy certain perquisites, for fiscal years 2003, 2002 and 2001, these did not exceed the lesser of $50,000 or ten percent (10%) of the salary and bonus of any such officer. |
| (2) | Our company has a stock bonus plan whereby certain employees of our company receive Class A Common Stock in proportion to their salary. The amount of the award is also dependent on our company’s earnings before tax and the stock price on the date of grant. The bonus shares vest at a rate of 33.33% per year on each anniversary of the grant date, and a participant’s right to non-issued shares is subject to forfeiture if the participant’s employment is terminated. Dividends are not paid on stock grant awards until such time as the stock is vested and issued to the executive. |
| (3) | The numbers in this column have been adjusted to account for the three-for-two stock split effected as of May 9, 2002. |
| (4) | Bonus amounts earned in fiscal year 2003 were paid to the executives prior to the fiscal year end. |
| (5) | Bonus amounts earned in fiscal year 2002 were paid to the executives in fiscal year 2003. |
| (6) | Bonus amounts earned in fiscal year 2001 were paid to the executives in fiscal year 2002 except for Ms. Bronstein who, pursuant to Board of Director approval, received quarterly advances on her fiscal year 2001 bonus in fiscal year 2001 which totaled $338,063. |
| (7) | Amount represents (i) additional compensation of $200,000 as agreed upon at the commencement of employment with our company, and (ii) payments totaling $2,328 in connection with the provision of an automobile for a partial year. |
| (8) | Amount represents (i) severance pay of $953,920, and (ii) payments totaling $3,339 in connection with the provision of an automobile. |
| (9) | Amount represents (i) pay in lieu of vacation for fiscal year 2002 of $80,777, and (ii) payments totaling $10,002 in connection with the provision of an automobile. |
| (10) | Amount represents (i) pay in lieu of vacation for fiscal year 2001 of $41,289, (ii) a payment of additional compensation of $186,049, pursuant to the Supplemental Compensation Agreement dated April 1, 2001 between our company and Ms. Bronstein, and (iii) payments totaling $1,725 in connection with the provision of an automobile. |
| (11) | Amount represents compensation in connection with the provision of an automobile. |
| (12) | Amount represents (i) additional compensation of $20,000 as agreed upon at the commencement of employment with our company; and (ii) payments totaling $9,500 in connection with the provision of an automobile for a partial year. |
| (13) | Amount represents (i) payments totaling $5,146 in connection with the provision of an automobile; (ii) reimbursement for moving costs totaling $19,927 for fiscal 2003. |
| (14) | Amount represents (i) payments totaling $4,486 in connection with the provision of an automobile; (ii) reimbursement for moving costs totaling $17,029 for fiscal 2002. |
| (14) | Mr. Whitford joined our company as Chief Executive Officer on June 30, 2003. Mr. Whitford’s annualized salary for fiscal year 2003 was $750,000. Mr. Whitford terminated his employment with our company effective November 4, 2004. |
| (15) | Mr. Teitelbaum, Chairman of the Board, served as interim Chief Executive Officer from February 5, 2003 to June 30, 2003. |
| (16) | Ms. Bronstein was relieved of her duties as Chief Executive Officer on February 5, 2003. |
| (17) | Ms. Pritchard joined our company on October 14, 2002. |
| (18) | Mr. Relich joined our company on August 27, 2001. |
| (19) | Ms. Powers joined our company on May 6, 2002. |
| (20) | Mr. Scott resigned from his position as Divisional President of Arden B. on January 7, 2003. |
| (21) | Ms. O’Toole separated from our company on December 3, 2003. |
| (22) | Mr. Scott received 30,000 of stock options in 2002 that were cancelled in 2003. |
| (23) | In fiscal years 2003, 2002 and 2001, our company paid a fee of $639,500, $575,000 and $500,000, respectively, to First Canada Management Consultants Limited, a company controlled by Mr. Teitelbaum, for the services of Mr. Teitelbaum, in his capacity as Chairman of the Board of our company, and Stephen Gross, Corporate Secretary of our company, respectively. See “Business Relationships.” |
Option Grants in fiscal 1998 were paid to the executives in fiscal
1999.
(4) Bonus amounts earned in fiscal 1997 were paid to the executives in fiscal
1998.
(5) Bonus amounts earned in fiscal 1996 were paid to the executives in fiscal
1997.
(6) Amount represents pay in lieu of vacation for fiscal 1998.
(7) Amount represents pay in lieu of vacation for fiscal 1997 and prior fiscal
years back to original date of hire for Ms. Bronstein, fiscal 1985, and for
Mr. Thomas, fiscal 1992.
6
OPTION GRANTS
Fiscal Year 2003
The following table sets forth information regarding options granted in 1998fiscal year 2003 to each of the named executive officers reflected in the Summary Compensation Table above for fiscal year 2003. All such options were granted pursuant to the Company'sour 1996 Long-Term Incentive Plan and 2000 Long-Term Incentive Plan.
OPTION GRANTS IN THE LAST FISCAL YEAR 2003
Individual Grants
Name | Number of Granted (shares)(1) | Percentage of Year 2002 | Exercise or ($ per share) | Expiration Date | Potential Realizable Value at Appreciation for Option Term(2) | ||||||||
| 5%($) | 10%($) | ||||||||||||
Peter D. Whitford(3) | 300,000 | 16.4 | % | 10.53 | 6/30/13 | 1,986,678 | 5,034,632 | ||||||
Jennifer Pritchard | 6,300 | 0.3 | % | 8.08 | 4/07/13 | 32,013 | 81,128 | ||||||
Michael Relich(4) | 3,000 75,000 4,500 | 0.2 4.1 0.2 | % % % | 7.21 8.08 8.08 | 3/13/13 4/07/13 4/07/13 | 13,603 381,110 22,867 | 34,473 965,808 57,948 | ||||||
Susan Powers | 4,400 15,000 | 0.2 0.8 | % % | 8.08 9.91 | 4/07/13 5/27/13 | 22,358 93,485 | 56,661 236,910 | ||||||
Pamela O’Connor | 2,500 3,200 30,000 | 0.1 0.2 1.6 | % % % | 7.21 8.08 8.08 | 3/13/13 4/07/13 4/07/13 | 11,336 16,261 152,444 | 28,727 41,208 386,323 | ||||||
Greg Scott(5) | 9,000 30,000 | 0.5 1.6 | % % | 8.08 8.08 | 4/07/13 4/07/13 | 45,733 152,444 | 115,897 386,323 | ||||||
Susan O’Toole | 9,000 10,000 150,000 | 0.5 0.5 8.2 | % % % | 8.08 11.77 9.91 | 4/07/13 8/25/13 5/27/13 | 45,733 52,357 934,852 | 115,897 153,087 2,369,098 | ||||||
| (1) | All options granted vest annually over three or five years. |
| (2) | Potential realizable value is based on the assumption that the stock price of the Class A Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the ten year option term. These numbers are calculated based on the requirements promulgated by the SEC and do not reflect our estimate of future stock price performance. |
| (3) | Executive officers no longer employed by our company have ninety (90) days after termination of their employment in which to exercise such options. Mr. Whitford resigned on November 4, 2004. As a result Mr. Whitford may exercise the options of the option grants set forth in the above chart until February 2, 2005. In addition, see “Employment Agreements with Executives” for a description of the new option grants provided to Mr. Whitford pursuant to his Separation Agreement with our company. |
| (4) | [Executive officers no longer employed by our company have ninety (90) days after termination of their employment in which to exercise such options.] |
| (5) | Executive officers no longer employed by our company have ninety (90) days after termination of their employment in which to exercise such options. Mr. Scott resigned from his position as Divisional President of Arden B. on January 7, 2003. As a result, the options granted to Mr. Scott during fiscal year 2003 have expired. |
Option Exercises in Fiscal Year 2003 and Fiscal Year-End Option Values
The following table sets forth information regarding the exercise of options by each of the named executive officers during fiscal year 2003. The table also shows the number and value of unexercised options held by each of the named executive officers as of January 31, 2004. The value of unexercised options is based on the assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price performance.
7
OPTION EXERCISE AND FISCAL YEAR-END VALUES
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND OPTION VALUES AT JANUARY 30, 1999
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT
SHARES JANUARY 30, 1999(#) JANUARY 30, 1999($)(1)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------- ----------- ----------- ------------- ---------- -------------
Kathy Bronstein.................. -- -- 80,000 160,000 2,680,000 3,455,000
Edmond Thomas.................... -- -- 80,000 160,000 2,680,000 3,455,000
Barbara Bachman.................. 4,000 123,000 6,000 20,000 173,750 417,900
Sharon Hughes.................... -- -- 2,500 10,000 59,000 236,000
Ann Cadier Kim................... 2,000 47,750 6,000 24,000 160,750 537,650
- ------------------------
(1) Represents the market value of shares underlying "in-the-money" options on
January 30, 1999 less the option exercise price. Options are "in-the-money"
at the fiscal year end if thea fair market value of the underlying securities
on such date exceeds the exercise or base price$8.75 per share as of the option.
RETIREMENT PLAN
January 31, 2004.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 2003
AND OPTION/SAR VALUES AT JANUARY 31, 2004
Name | Shares Acquired on Exercise(#) | Value Realized($) | Number of Securities Underlying Unexercised Options at January 31, 2004(#) | Value of Unexercised “In-the-Money” Options at January 31, 2004($)(1) | |||||||||||
Peter D. Whitford | — | — | — | 300,000 | — | — | |||||||||
Irving Teitelbaum | |||||||||||||||
Kathy Bronstein | 200,000 | $ | 809,226 | 205,000 | — | — | — | ||||||||
Jennifer Pritchard | — | — | 10,000 | 46,300 | — | $ | 4,221 | ||||||||
Michael Relich | — | — | 15,000 | 115,000 | — | $ | 57,885 | ||||||||
Susan Powers | — | — | — | 39,400 | — | $ | 2,948 | ||||||||
Pamela O’Connor | — | — | 27,000 | 49,950 | — | $ | 26,094 | ||||||||
Greg Scott | — | 133,750 | — | $ | 177,081 | — | |||||||||
Susan O’Toole | — | — | — | — | — | — | |||||||||
| (1) | Represents the market value of shares underlying “in-the-money” options on January 31, 2004 less the option exercise price. Options are “in-the-money” at the fiscal year end if the fair market value of the underlying securities on such date exceeds the exercise or base price of the option. |
Irving Teitelbaum Kathy Bronstein and Edmond Thomas are participantswas a participant in The Wet Seal, Inc. Supplemental Executive Retirement Plan ("SERP"(“SERP”), an unfunded, nonqualified retirement plan.plan as of January 31, 2004. During the fiscal year ended January 31, 2004, Kathy Bronstein, the former chief executive officer of our company, terminated participation in SERP resulting in a curtailment/settlement of the benefit obligation of $1,347,000. According to the terms of the SERP, a participant's "Annualparticipant’s “Annual Accrued Benefit"Benefit” shall be $250,000 which may be increased upward, if applicable, based on the "Pre-Tax“Pre-Tax Profit Percentage"Percentage” (as defined in the SERP) for the three full fiscal years of the Companyour company preceding the date the participant'sparticipant’s service with the Companyour company is terminated, as follows:
3-Year Average Pre-Tax Profit Percentage | Annual Accrued Benefit | ||
if 4.25% or greater but less than 4.75% | $ | 300,000 | |
if 4.75% or greater but less than 5.25% | $ | 350,000 | |
if 5.25% or greater but less than 5.75% | $ | 400,000 | |
if 5.75% or greater but less than 7.00% | $ | 450,000 | |
if 7.00% or greater | $ | 500,000 | |
A participant is entitled to receive benefits under the SERP upon his or her Normal Retirement Date (the first day of the month following the date the participant'sparticipant’s service with the Companyour company as an officer or executive has terminated, and which occurs at or after the date the participant has attained 22.5 years of service with the Company)our company). A participant may receive an early retirement benefit equal to his or her Annual Accrued Benefit reduced by 1/2½ of 1% per month for the number of months his or her retirement precedes his or her Normal Retirement Date. The normal form of benefit is a straight life annuity, ending in the month in which the participant dies. The Annual Accrued Benefit is payable in 12 equal monthly installments a year. The participant may choose
to receive the benefit in the form of a 50% joint and survivor annuity. Benefits under the SERP are forfeitable upon a termination of employment for Cause“Cause” (as defined in the SERP). Benefits under the SERP are provided by the Companyour company on a noncontributory basis.
DIRECTOR COMPENSATION
Employment Agreements with Executives
Peter D. Whitford
Peter D. Whitford served as the Chief Executive Officer of our company from June 30, 2003 through November 4, 2004. During his employment, Mr. Whitford was entitled to receive an annual base salary of $750,000, adjustable annually, and was eligible to receive a performance bonus. At the time his employment with our company terminated his annual salary was $775,000.
On November 4, 2004, the Company and Mr. Whitford entered into an Agreement and General Release (the “Agreement”) to terminate Mr. Whitford’s employment with the Company. Pursuant to the Agreement, Mr. Whitford resigned from his positions as our Chief Executive Officer, Director and Chairman of our Board of Directors, effective as of November 4, 2004.
In addition, the Agreement provides that Mr. Whitford will receive certain payments and grants of options from the Company, including: (i) bi-weekly payments of $29,807 to be paid from November 5, 2004 until the earlier of (x) January 31, 2005 and (y) the closing of the Principal Financing (the “Payment Date”), (ii) 300,000 options at an exercise price of $1.75 per share and 200,000 options at an exercise price of $2.00 per share, exercisable until June 1, 2006 to be issued on or before December 1, 2004, (iii) a payment of $1,585,000 (less the total amount of bi-weekly payments) to paid on the Payment Date, representing two years of compensation, (iv) a payment of $509,400 to paid on the Payment Date, representing the cost of three annual contributions to Mr. Whitford’s supplemental executive retirement plan, (v) a payment of an amount equal to the cost of Mr. Whitford’s continued healthcare coverage for eighteen months following November 4, 2004, to be paid on or before the Payment Date, and (vi) $50,000 representing the cost of providing outplacement services to be paid on the Payment Date. Furthermore, each of the Company and Mr. Whitford released the other party from any claims it had against such other party up to November 4, 2004.
Joseph Deckop
On October 28, 2004, we entered into a retention agreement with Joseph Deckop, our then Executive Vice President and our current interim Chief Executive Officer. Under the retention agreement, Mr. Deckop received a one-time retention cash bonus of $100,000 payable on December 1, 2004, which is required to be returned to our company if Mr. Deckop were to voluntarily terminate his employment with our company within 12 months. In addition, Mr. Deckop received a grant of 155,000 shares of our restricted stock and certain severance protections in the event of an involuntary termination of employment by our company. We have not modified Mr. Deckop’s retention agreement in connection with his appointment as interim Chief Executive Officer of our company.
Douglas C. Felderman
On October 28, 2004, we entered into a retention agreement with Douglas C. Felderman, our Executive Vice President and Chief Financial Officer. Under the retention agreement, Mr. Felderman received a one-time retention cash bonus of $100,000 payable on December 1, 2004, which is required to be returned to our company if Mr. Felderman were to voluntarily terminate his employment with our company within 12 months. In addition, Mr. Felderman received a grant of 155,000 shares of our restricted stock and certain severance protections in the event of an involuntary termination of employment by our company.
Jennifer Pritchard
On September 27, 2004, we entered into a retention agreement with Jennifer Pritchard, President of our Arden B division. Ms. Pritchard’s base salary was increased by $25,000 to an annual rate of $410,000 and her bonus opportunity, which is currently 50% of her salary was increased to 75% of her salary, and from a current maximum
of 100% of her salary to a new maximum of 150% of her salary. In addition, Ms. Pritchard was given a retention cash bonus of $200,000, which is required to be returned to our company if she were to leave voluntarily within 12 months. Ms. Pritchard has the right to exchange the retention cash bonus for an award of 200,000 shares of our Class A Common Stock. In addition, she received a grant of 200,000 shares of our restricted stock and certain severance protections in the event of an involuntary termination of employment by our company.
All directors who are not directly affiliated with the Company as well as
one director who is affiliatedother than Mr. Teitelbaum and Mr. Stephen Gross receive a fee of $5,000$8,000 for each board meeting attended, with a minimum yearly fee of $20,000.$32,000. A fee of $600 is paid for each board conference call. In addition, each director, other than Mr. Teitelbaum and Mr. Stephen Gross, received 10,000 stock options on March 13, 2003. These options vest in three equal installments on the first, second and third anniversaries of the date of grant. The awarding of stock options by our company to directors, in their capacity as such, is at the discretion of the Compensation Committee. All
8
An additional
Each Audit Committee member receives a fee of $1,000 is paid to non-employee
directors$5,000 for each Audit committeeCommittee meeting attended. All directors who are not directly affiliatedAt the request of the Audit Committee, Mr. Siegel attended each Audit Committee meeting during fiscal year 2003 and received the same fee for each meeting attended.
Each Compensation Committee member receives a fee of $500 for each Compensation Committee meeting attended.
On August 18, 2004, we formed a special committee of our Board of Directors to analyze various business alternatives in light of our financial condition. The Special Committee was composed of Henry Winterstern, Chairman, Howard Gross and Alan Siegel. Upon the recommendation of Pearl Meyer & Partners, a leading compensation consulting firm, Henry Winterstern received a fee of $35,000 per month for the first two months of service on the Special Committee, while Messrs. Gross and Siegel received $25,000 per month for the same period. Each member of the Special Committee received one-half of his respective monthly fee for the third month of service on the Special Committee. The Special Committee was disbanded upon execution of the Securities Purchase Agreement with the CompanyInvestors.
Changes in our Board Composition and Management
The composition of our Board of Directors and executive management has changed since our last annual meeting. On August 3, 2004, Peter D. Whitford was appointed as wella director and chairman of our Board of Directors. On this same date, Mr. Teitelbaum was replaced by Mr. Whitford as onechairman of our Board of Directors but remained as a director who is affiliated were granted stock options of 5,000 shares eachour company. On August 18, 2004, our company appointed Howard Gross as lead director and Mr. Winterstern and Anne K. Zehren as directors of our Board. On the same day, George H. Benter and Barry J. Entous retired from our Board of Directors. As a result of the foregoing changes, the size of our Board of Directors has decreased from 9 members to 7 members. For additional information on the requirements regarding our Board of Directors in fiscal 1997 pursuant to the Company's 1996 Long-Term Incentive Plan. Two
directors who are affiliatedconnection with the Company were granted stock options of
100,000 shares each in fiscal 1997 pursuant to the Company's 1996 Long-Term
Incentive Plan. The options vest at the rate of 20% per year for the next five
years.
All directors, except one, who are not directly affiliated with the CompanyPrincipal Financing, see “Proposal 1 – Conditions Precedent”.
On November 4, 2004, Mr. Whitford resigned from his position as well as one director who is affiliated were granted stock options of 10,000
shares each in fiscal 1994 pursuant to the Company's 1994 Long-Term Incentive
Plan. One independent director was granted 15,000 options in fiscal 1996. The
options vest at the rate of 20% per year for the next five years.
EMPLOYMENT AGREEMENTS
KATHY BRONSTEIN
Kathy Bronstein has served as the Chief Executive Officer and chairman of the Company
since March 1992. On December 30, 1988, in her former positionour Board of Directors. In connection with Mr. Whitford’s resignation, our board appointed Joseph Deckop as interim Chief Executive Vice
President and General Merchandise Manager, Ms. Bronstein entered into an
employment agreement with the Company. Under this agreement, as amended, Ms.
Bronstein is entitled to a base salary of $550,000 per annum, adjusted annually
by a performance bonus of 0.5% ( 1/2 of 1%) of the pre-tax profits of the
Company for the preceding fiscal year to the extent this amount exceeds the
aggregate cash dividends Ms. Bronstein is eligible to receiveOfficer effective November 8, 2004. Also on her holdings of
the Company's capital stock referable to the same fiscal year. This adjustment
is not cumulative and is in lieu of any salary review or cost of living
adjustments. Ms. Bronstein also receives an incentive bonus of 3.5% of the
pre-tax profits of the Company (as defined in the agreement) for each fiscal
year.
In January 1995, Ms. Bronstein's employment agreement was amended to provide
automatic extensions to the term of her employment agreement as well as
termination benefits upon the occurrence of certain trigger events. In the event
of a trigger event, the employment agreement is terminated and Ms. Bronstein is
entitled to receive an immediate payment approximately equal to three years of
Ms. Bronstein's current base salary and bonus during the last three fiscal
years. Trigger events include a "change in control" AND either (i) Ms.
Bronstein's election to resign within 90 days of a material change in Ms.
Bronstein's rights and duties or (ii) Ms. Bronstein's termination by the Company
without cause. A "change in control" means (i) the disposition or conversion by
a Class B stockholder (other than Ms. Bronstein) of a majority of that
stockholder's Class B shares or (ii) the acquisition of more than 50% of the
voting power in a Class B stockholder or the ability to control the disposition
or voting of a Class B stockholder's shares AND a majority of theNovember 8, 2004, our Board of Directors ofaccepted the Company ceases to be those in office two years prior to the
change in control ("Continuing Directors") or those elected by a majority of
other Continuing Directors. In addition, upon a change in control (regardless of
the termination of the employment agreement), Ms. Bronstein's stock options
become immediately exercisable. In the event that the total payments made to Ms.
Bronstein upon the occurrence of a trigger event result in "excess parachute
payments" under the Internal Revenue Code of 1986, as amended, the Company would
be obligated to pay the excise tax due on such amount and any income tax
obligations arising from reimbursement of any such excise taxes.
Ms. Bronstein's agreement expires on January 30, 2004. The agreement
automatically extends for an additional year on the first day of each subsequent
fiscal year. These automatic extensions may be terminated by either party at any
time upon prior written notice. She has agreed not to compete with the Company
during the term of her employment and for a period of two (2) years thereafter.
She is provided with a car by the Company.
9
In April 1999, Ms. Bronstein's employment agreement was further amended to
provide that, commencing with fiscal year 1999, if stockholder approval is not
obtained with respect to the Bonus Awards granted to Ms. Bronstein under her
employment agreement then the performance bonus adjustment and the incentive
bonus (or portion thereof) will not be paid to Ms. Bronstein to the extent that
the aggregate remuneration (including but not limited to the base salary,
performance bonus adjustment and incentive bonus) otherwise payable under the
employment agreement exceeds $1,000,000. (See Proposal #3.)
The Company has obtained "key man" life insurance in the amount of $3.0
million payable to the Company in the eventresignation of Ms. Bronstein's death while
employed by the Company.
EDMOND THOMAS
Edmond Thomas has servedZehren and appointed Mr. Winterstern as the Company's President and Chief Operating
Officer since March 17, 1994. On June 22, 1992, in his former positionchairman of Executive Vice President and Chief Operating Officer, he entered into an
employment agreement with the Company. Under this agreement, as amended, Mr.
Thomas is entitled to a base salary of $550,000 per annum plus an annual
performance bonus adjustment of .50% ( 1/2 of 1%) of the pre-tax profits of the
Company for the preceding fiscal year to the extent this amount exceeds the
aggregate cash dividends Mr. Thomas is eligible to receive on his holdings of
the Company's capital stock referable to the same fiscal year. This adjustment
is non cumulative and is in lieu of any salary review or cost of living
adjustments. Mr. Thomas also receives an incentive bonus of 2% of the pre-tax
profits of the Company (as defined in the agreement) for each fiscal year.
In January 1995, Mr. Thomas' employment agreement was amended to provide
automatic extensions to the term of his employment agreement as well as
termination benefits upon the occurrence of certain trigger events. In the event
of a trigger event, the employment agreement is terminated and Mr. Thomas is
entitled to receive an immediate payment approximately equal to three years of
Mr. Thomas' current base salary and bonus during the last three fiscal years.
Trigger events include a "change in control" AND either (i) Mr. Thomas' election
to resign within 90 days of a material change in Mr. Thomas' rights and duties
or (ii) Mr. Thomas' termination by the Company without cause. A "change in
control" means (i) the disposition or conversion by a Class B stockholder (other
than Ms. Bronstein) of a majority of that stockholder's Class B shares or (ii)
the acquisition of more than 50% of the voting power in a Class B stockholder or
the ability to control the disposition or voting of a Class B stockholder's
shares AND a majority of theour Board of Directors of the Company ceases to be
those in office two years prior to the change in control ("Continuing
Directors") or those elected by a majority of other Continuing Directors. In
addition, upon a change in control (regardless of the termination of the
employment agreement), Mr. Thomas' stock options become immediately exercisable.
In the event that the total payments made to Mr. Thomas upon the occurrence of a
trigger event result in "excess parachute payments" under the Internal Revenue
Code of 1986, as amended, the Company would be obligated to pay the excise tax
due on such amount and any income tax obligations arising from reimbursement of
any such excise taxes.
Mr. Thomas' agreement expires on January 30, 2004. The agreement
automatically extends for an additional year on the first day of each subsequent
fiscal year. These automatic extensions may be terminated by either party at any
time upon prior written notice. He has agreed not to compete with the Company
during the term of his employment and for a period of two (2) years thereafter.
He is provided with a car by the Company.
In April 1999, Mr. Thomas' employment agreement was further amended to
provide that, commencing with fiscal year 1999, if stockholder approval is not
obtained with respect to the Bonus Awards granted to Mr. Thomas under his
employment agreement then the performance bonus adjustment and the incentive
bonus (or portion thereof) will not be paid to Mr. Thomas to the extent that the
aggregate remuneration (including but not limited to the base salary,
performance bonus adjustment and incentive bonus) otherwise payable under the
employment agreement exceeds $1,000,000. (See Proposal #4.)
10
The Company has obtained "key man" life insurance in the amount of $5.0
million payable to the Company in the event of Mr. Thomas' death while employed
by the Company.
BUSINESS RELATIONSHIPS
MANAGEMENT SERVICES
In fiscal year ended January 30, 1999,years 2003, 2002 and 2001, our company paid a fee of $375,000,$639,500, $575,000 and in each of the
fiscal years ended January 31, 1998 and February 1, 1997, a fee of $250,000 was
paid$500,000, respectively, to First Canada Management Inc.,Consultants Limited, a company controlled by IrvingMr. Teitelbaum, for the services of IrvingMr. Teitelbaum, in his capacity as Chairman of the Board of the
Company,our company, and Stephen Gross, Corporate Secretary of our company, respectively. These services were provided pursuant to a Management Agreement, dated
December 1, 1999, and amended on June 28, 2001, between First Canada Management Consultants Limited and our company. The agreement was terminated in May 2004.
Mr. Alan Siegel has been a director of our company since 1990. Mr. Siegel is a partner in the Company, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Irving Teitelbaum,law firm of Akin Gump Strauss Hauer & Feld LLP, which provides legal services to our company.
Compensation Committee Interlocks and Insider Participation
Walter Loeb (Chairman), Wilfred Posluns and George H. Benter, Jr. serveserved as members of the Compensation Committee. Mr. Teitelbaum also serves as ChairmanCommittee during fiscal year 2003. None of these individuals were executive officers or employees of our company. Our current Compensation Committee consists of Henry Winterstern, Howard Gross and Walter Loeb.
Report of the Board of the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Compensation/Option Committee on Executive Compensation
The primary duties of the Compensation Committee include: (i) reviewing the compensation levels of the Company'sour company’s primary executive officers and certain other members of senior management, (ii) consulting with and making recommendations to the Company's Option Committeeour company’s Board of Directors regarding the Company'sCompany’s overall policy of granting options and awards under the Company'sour company’s long-term incentive plans, (iii) monitoring the performance of senior management, (iv) granting stock options to executive officers and (iv)other key employees, and (v) related matters. A decision to employ any person with an annual compensationThe Board of $150,000 or more (or any increase in annual compensation to $150,000 or more)
must be approved byDirectors has affirmatively determined that each member of the Compensation Committee. The Compensation Committee is comprised entirely of non-employee Directors.
COMPENSATION PHILOSOPHY
The Company'sindependent in accordance with Nasdaq National Market listing standards.
Our company’s executive compensation programs are based upon the recognition that The Wet Seal, Inc. competes in a creative industry in which it is critical to stay current with rapidly changing trends and styles. Competition is intense for talented executives who can successfully guide a company in this type of competitive environment. Therefore, the Company'sour company’s compensation programs are designed to provide total compensation packages that will both attract talented individuals to the Companyour company as well as provide rewards based upon the Company'sour company’s long-term success.
With these principles in mind, the Compensation Committee has set forth the following guidelines:
1. Provide base salaries whichthat are competitive in the retail clothingapparel industry to attract and retain talented individuals;
2. Provide annual bonuses that are tied to the Company'sour company’s short-term performance to align the interests of the Company'sour company’s executives with those of its stockholders; and
3. Provide long-term incentive benefits whichthat will reward long-term commitment to the Company.
COMPENSATION OF EXECUTIVE OFFICERS
our company.
Compensation of Executive Officers
Base salaries for executive officers are established with a view to the responsibilities of the position and the experience of the individual. Salary levels are also fixed with reference to comparable companies in retail and related trades. The salaries of key executive officers and the incentive plans in which they participate are reviewed annually by the CompensationCompensation/Option Committee in light of the Committee'sCommittee’s assessment of individual performance, contribution to the Companyour company and level of responsibility.
11
The Chief
Executive Officer (the "CEO") and the President and Chief
Operating Officerofficers are eligible pursuant to their employment agreements (provided
the approval of the stockholders is obtained as described below--see Proposals
#3 and #4) to receive annual cash bonuses with a percentage based on the profitability of 3.5%our company and 2%, respectively, of the
Company's pre-tax profit.another percentage based on individual performance. The Compensation Committee believes that tying annual cash bonuses to the Company'sour company’s profitability aligns the interests of management with stockholders and encourages intensive efforts to attain and increase profitability. The CEO and the President and Chief Operating Officer of the
Company earned cash bonuses in fiscal 1998 in the amounts of $1,477,097 and
$844,055, respectively, which were paid in fiscal 1999.
The Company also
Our company maintains an employee stock bonus plan in which the top executives and other key employees of the Companyour company are eligible to participate. Awards under this plan to
executives are calculated by multiplying the Company'sour company’s fiscal year-end pre-taxyear end pre tax profit (if any) as a percentage of sales by the executive'semployee’s base salary and dividing such amount by the price of the Company'sour company’s Class A Common Stock as of the end of the fiscal year. Grants under the stock bonus plan vest over a period of three years.
Stock options are granted to executive officers and other key employees whose contributions are considered important to the long-term success of the
Companyour company pursuant to the Company'sour company’s long-term incentive plans. Stock options have historically been granted by the OptionCompensation Committee on a case-by-case basis based upon management’s recommendations and the Board'sCommittee’s evaluation of an individual'sindividual’s past contributions and potential future contributions to the Company.our company. In granting stock options, the OptionCompensation Committee takes into consideration the anticipated long-term contributions of an individual to the potential growth and success of the Company,our company, as well as the number of options previously granted to the individual.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Since March 1992, Kathy Bronstein has
Compensation of the Chief Executive Officer
On June 30, 2003, Peter D. Whitford was appointed Chief Executive Officer by our Board of Directors. For fiscal year 2003, Mr. Whitford was compensated in accordance with his employment agreement, which is described under the heading “Employment Agreements with our Executive Officers” in this proxy statement. Mr. Whitford’s employment with our company was terminated effective as of November 4, 2004.
Irving Teitelbaum, former Chairman of the Board, served as CEOinterim Chief Executive Officer from February 5, 2003, to June 30, 2003. In his capacity as interim Chief Executive Officer, Mr. Teitelbaum received compensation of the Company. Ms.
Bronstein received a base salary$23,077.
Limitations on Deductibility of $375,000 in fiscal 1995. In December 1995,
Ms. Bronstein's employment agreement was amended to increase her base salary to
$550,000. TheExecutive Compensation Committee deemed this increase appropriate in light
of the Company's recent performance and the successful acquisition of the
Contempo Casuals chain, which substantially increased the size of the Company.
As the Company continues to adapt to a changed environment in the women's retail
apparel industry, the Compensation Committee believes that Ms. Bronstein's
experience and capabilities will be critical in enabling the Company to remain
competitive and profitable. Ms. Bronstein is eligible to receive a
non-cumulative annual adjustment (in lieu of a cost of living adjustment) to her
base salary of 0.5% of the pre-tax profits of the Company for the preceding
fiscal year to the extent this amount exceeds the aggregate cash dividends Ms.
Bronstein is eligible to receive on her holdings of Company common stock for the
same fiscal year (provided the approval of the stockholders is obtained as
described below--see Proposal #3). Ms. Bronstein received such an adjustment in
fiscal 1998. See "Executive Compensation and Other Information--Employment
Agreements." Ms. Bronstein is also eligible to receive an annual cash bonus
pursuant to her employment agreement of 3.5% of the pre-tax profits of the
Company for each fiscal year (provided the approval of the stockholders is
obtained as described below--see Proposal #3). Under this formula, Ms. Bronstein
earned a cash bonus in fiscal 1998 in the amount of $1,477,097, which was paid
in fiscal 1999.
LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, of 1986, as amended, enacted as part of the Revenue Reconciliation Act of 1993, limits the deductibility of compensation paid to certain executive officers of the Company beginning with the Company'sCompany’s taxable year 1994. To qualify for deductibility under Section 162(m), compensation in excess of $1 million per year paid to the Chief Executive Officer and the four other most highly compensated executive officers at the end of such fiscal year generally must be either (1) paid pursuant to a written binding contract in effect on February 17, 1993, or (2) "performance-based"“performance-based” compensation as determined under Section 162(m). In order to be considered "performance-based"“performance-based” for this purpose, compensation must be paid solely on account of the attainment of one or more 12
"outside“outside directors,"” pursuant to an arrangement that has been disclosed to and approved by stockholders. Also, in order for an arrangement to give rise to fully deductible "performance-based"“performance-based” compensation, the terms of the arrangement must preclude the exercise of any discretion in the administration of the plan that would have the effect of increasing compensation paid thereunder.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION DEDUCTIBILITY
The Company's
Policy with Respect to Qualifying Compensation Deductibility
Our policy with respect to the deductibility limit of Section 162(m) of the Code generally is to preserve the federal income tax deductibility of compensation paid when it is appropriate and is in the best interest of the
Companyour company and its stockholders. However, the Companyour company reserves the right to authorize the payment of non-deductible compensation if it deems that it is appropriate.
Securities Authorized for Issuance Under Equity Compensation Plans
The Compensation Committee
Irving Teitelbaum
Wilfred Posluns
George H. Benter, Jr.
13
STOCK PRICE PERFORMANCE GRAPH
Thefollowing table provides information as of January 31, 2004 about our Class A Common Stock that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the Board of Directors under all of the Company’s existing equity compensation plans, including our company’s 1996 Long-Term Incentive Plan and 2000 Stock Incentive Plan, each as amended.
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||
Equity compensation plans approved by security holders | 3,462,227 | $ | 11.21 | 2,369,151 | |||
Equity compensation plans not approved by security holders | 0 | NA | NA | ||||
Total | 3,462,227 | $ | 11.21 | 2,369,151 | |||
The following graph compares the cumulative stockholder return on the
Company's common stockour company’s Class A Common Stock with the return on the Total Return Index for the NasdaqNASDAQ Stock Market (US) and the NasdaqNASDAQ Retail Trade Stocks. The Performance Graphgraph assumes $100 invested on January 28, 199429, 1999 in the stock of The Wet Seal, Inc., the NasdaqNASDAQ Stock Market (US) and the NasdaqNASDAQ Retail Trade Stocks. It also assumes that all dividends are reinvested.
PERFORMANCE GRAPH
FOR THE WET SEAL COMMON STOCK
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Performance Graph for the Company's fiscal year end.
Class A Common Stock of Wet Seal, Inc.
January 29, 1999* | January 28, 2000* | February 2, 2001* | February 2, 2002* | February 1, 2003* | January 31, 2004* | |||||||
The Wet Seal, Inc. | 100 | 29 | 82 | 106 | 53 | 52 | ||||||
NASDAQ Stock Market (US) | 100 | 154 | 105 | 76 | 53 | 82 | ||||||
NASDAQ Retail Trade Stocks | 100 | 80 | 62 | 73 | 60 | 88 |
| * | Closest preceding trading date to the beginning of our fiscal year. |
The historical stock performance shown on the graph is not necessarily indicative of future price performance.
14
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of April 5, 1999, for (i) each person
known to the Company to have beneficial ownership of more than 5% of each class
of the Company's capital stock; (ii) each of the Company's directors; (iii) each
of the Company's executive officers designated in the Summary Compensation
Table; and (iv) all directors and officers of the Company as a group.
% % %
NUMBER BENEFICIAL BENEFICIAL BENEFICIAL
OF SHARES OWNERSHIP NUMBER OWNERSHIP OWNERSHIP
OF OF SHARES OF SHARES OF SHARES OF ALL CLASSES
NAME CLASS A OF CLASS A OF CLASS B OF CLASS B OF STOCK
- ---------------------------------------------- ----------- ------------- ----------- ------------- -----------------
Los Angeles Express Fashions, Inc. (Suzy Shier
Equities, Inc. Subsidiary) (1).............. -- -- 1,300,000 44.6% 10.6%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
3254127 Canada, Inc. (GTHI Subsidiary) (1).... -- -- 815,573 28.0% 6.6%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
Suzy Shier Equities, Inc. (Suzy Shier Ltd.
Subsidiary) (1)............................. 104,000 1.1% 175,000 6.0% 2.3%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
La Senza, Inc. (Suzy Shier Ltd. Subsidiary)
(1)......................................... 244,500 2.6% 155,000 5.3% 3.2%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
Kathy Bronstein (2)........................... 123,923 1.3% 467,092 16.0% 4.8%
Ed Thomas (3)................................. 128,147 1.4% -- -- 1.0%
Barbara Bachman (4)........................... 4,000 * -- -- *
Sharon Hughes (4)............................. 7,522 * -- -- *
Ann Cadier Kim (4)............................ 8,447 * -- -- *
George Benter (4)............................. 10,500 * -- -- *
Stephen Gross (4)............................. 20,000 * -- -- *
Walter F. Loeb (4)............................ 10,400 * -- -- *
Wilfred Posluns (4)........................... 6,000 * -- -- *
Gerald Randolph (4)........................... 2,000 * -- -- *
Alan Siegel (4)............................... 4,000 * -- -- *
Irving Teitelbaum (4)......................... 20,000 * -- -- *
FMR Corp. (5)................................. 1,280,700 13.6% -- -- 10.4%
82 Devonshire Street Boston, Massachusetts
02109
Lazard Freres & Co. LLC (6)................... 1,064,585 11.3% -- -- 8.6%
30 Rockefeller Plaza New York, New York
10020
Amvescap PLC (7).............................. 609,900 6.5% -- -- 5.0%
11 Devonshire Square London, England EC2M
4YR
Freiss Associates, Inc. (8)................... 600,000 6.4% -- -- 4.9%
115 E. Snow King Jackson, Wyoming 83001
All directors and officers as a group (13
individuals)................................ 700,865 7.5% 2,912,665 100.0% 29.3%
PERCENT
OF VOTE OF
ALL CLASSES
NAME OF STOCK
- ---------------------------------------------- -------------
Los Angeles Express Fashions, Inc. (Suzy Shier
Equities, Inc. Subsidiary) (1).............. 17.1%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
3254127 Canada, Inc. (GTHI Subsidiary) (1).... 10.7%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
Suzy Shier Equities, Inc. (Suzy Shier Ltd.
Subsidiary) (1)............................. 3.0%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
La Senza, Inc. (Suzy Shier Ltd. Subsidiary)
(1)......................................... 3.6%
1604 St. Regis Blvd. Dorval, Quebec, Canada
H9P1H6
Kathy Bronstein (2)........................... 6.9%
Ed Thomas (3)................................. *
Barbara Bachman (4)........................... *
Sharon Hughes (4)............................. *
Ann Cadier Kim (4)............................ *
George Benter (4)............................. *
Stephen Gross (4)............................. *
Walter F. Loeb (4)............................ *
Wilfred Posluns (4)........................... *
Gerald Randolph (4)........................... *
Alan Siegel (4)............................... *
Irving Teitelbaum (4)......................... *
FMR Corp. (5)................................. 8.4%
82 Devonshire Street Boston, Massachusetts
02109
Lazard Freres & Co. LLC (6)................... 7.0%
30 Rockefeller Plaza New York, New York
10020
Amvescap PLC (7).............................. 4.0%
11 Devonshire Square London, England EC2M
4YR
Freiss Associates, Inc. (8)................... 3.9%
115 E. Snow King Jackson, Wyoming 83001
All directors and officers as a group (13
individuals)................................ 42.9%
- ------------------------------
* Less than 1%
(1) Los Angeles Express Fashions, Inc., 3254127 Canada, Inc., Suzy Shier
Equities, Inc. and La Senza, Inc. are directly or indirectly controlled by
Irving Teitelbaum, Chairman of the Board, and Stephen Gross, Secretary and a
director of the Company. These stockholders beneficially own shares which in
the aggregate represent approximately 34.7% of the total voting power with
respect to the Company.
(2) Ms. Bronstein has sole voting and dispositive power with respect to all of
the stated holdings of Class A and Class B Common Stock. Shares held include
options representing the immediate right to purchase 120,000 shares of Class
A Common Stock. Ms. Bronstein also holds options to purchase an additional
120,000 shares of Class A Common Stock which become exercisable over the
next three years.
(3) Mr. Thomas has sole voting and dispositive power with respect to all of the
stated holdings of Class A Common Stock. Shares held include options
representing the immediate right to purchase 120,000 shares of Class A
Common Stock. Mr. Thomas also
15
holds options to purchase an additional 120,000 shares of Class A Common
Stock which become exercisable over the next three years.
(4) Shares held include options representing the immediate right to purchase the
following shares of Class A Common Stock: Ms. Hughes--4,500; Ms. Cadier
Kim--7,000; Messrs. Benter and Loeb--9,000 each; Mr. Gross--20,000; Mr.
Posluns--6,000; Mr. Randolph--1,000; Mr. Siegel--4,000 and Mr.
Teitelbaum--20,000.
(5) As reported in a Schedule 13G dated March 10, 1999, FMR Corp. beneficially
owns 1,280,700 shares of the Class A Common Stock of the Company. FMR Corp.
has sole voting power with respect to 219,800 shares and sole dispositive
power with respect to 1,280,700 shares.
(6) As reported in a Schedule 13G dated February 10, 1999, Lazard Freres & Co.
LLC ("Lazard") beneficially owns 1,064,585 shares of the Class A Common
Stock of the Company. Lazard has sole voting power with respect to 838,065
shares and sole dispositive power with respect to 1,064,585 shares.
(7) As reported in a Schedule 13G dated March 10, 1999, AMVESCAP PLC ("AMV") is
the parent holding company of AVZ, Inc. ("AVZ"), AIM Management Group, Inc.
("AIM"), AMVESCAP Group Services, Inc. ("AGS"), INVESCO, Inc. ("II") and
INVESCO North American Holdings, Inc. ("IAH"). AMV beneficially owns 609,900
shares of the Class A Common Stock of the Company. AMV, AVZ, AIM, AGS, II,
and IAH have shared voting and dispositive power with respect to 609,900
shares.
(8) As reported in a Schedule 13G dated January 25, 1999, Friess Associates,
Inc. ("Friess") beneficially owns 600,000 shares of the Class A Common Stock
of the Company. Friess has sole voting power and sole dispositive power with
respect to 600,000 shares.
16
PROPOSALS
PROPOSAL #2
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF THE COMPANY'S PREFERRED STOCK AND CLASS A COMMON STOCK
The Company is proposing to amend its Certificate of Incorporation to
increase the number of authorized shares of its Preferred Stock, par value $.01
per share, from 2,000,000 shares to 5,000,000 shares. No shares of the Company's
Preferred Stock are issued and outstanding. The Preferred Stock may be issued in
series and denominations and with terms and conditions as established by the
Company's Board of Directors.
In addition, the Company is proposing to amend its Certificate of
Incorporation to increase the number of authorized shares of its Class A Common
Stock, par value $.10 per share, from 20,000,000 shares to 50,000,000 shares.
The newly authorized shares of Class A Common Stock will be identical in all
respects to the issued and outstanding shares of Class A Common Stock. Of the
20,000,000 shares of Class A Common Stock the Company is presently authorized to
issue, 10,733,386 shares are issued and outstanding. Of the 10,733,386 shares,
1,327,000 shares are currently held as Treasury Stock and thus not entitled to
vote.
As the Company may require that additional shares of its capital stock be
available for acquisitions and other corporate purposes, such as stock splits or
other recapitalizations, the Board of Directors has resolved to seek approval of
additional shares of capital stock by amendment of the Company's Certificate of
Incorporation. While there are no acquisitions pending which would involve the
issuance of such additional shares, the Company does from time to time consider
potential acquisitions, some or all of which may involve the issuance of shares
by the Company.
The affirmative vote of the majority of the outstanding shares of the
Company entitled to vote thereon and, with respect to the increase in the number
of authorized shares of Class A Common Stock, the affirmative vote of the
majority of the outstanding shares of Class A Common Stock entitled to vote
thereon, voting together as a separate class, is required to adopt the
resolution to amend the Company's Certificate of Incorporation to increase the
authorized capital stock in the manner described above. The Board of Directors
unanimously recommends a vote "FOR" approval of the resolution.
PROPOSAL #3
APPROVAL OF THE PERFORMANCE BONUS AWARD AND INCENTIVE BONUS AWARD FOR THE VICE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
On April 16, 1999, the Board of Directors and the Incentive Compensation
Subcommittee approved the terms of the performance bonus award and incentive
bonus award ("Bonus Awards") for the Vice Chairman and Chief Executive Officer
of the Company, subject to approval by the Company's stockholders in accordance
with the provisions of Section 162(m) of the Internal Revenue Code of 1986, as
amended. The Bonus Awards were awarded in connection with the Company's
employment agreement with Ms. Bronstein. Section 162(m) generally authorizes the
deduction of compensation in excess of $1 million per taxable year payable to
the Chief Executive Officer and the four other most highly compensated executive
officers only where such compensation is based on performance and satisfy
certain other requirements and is approved by stockholders.
The affirmative vote of the holders of at least a majority of the
outstanding shares of the Company present in person or by proxy and entitled to
vote at the Annual Meeting is required to adopt the resolution to approve the
Bonus Awards granted to Ms. Bronstein. If the Bonus Awards are approved by the
stockholders and certain other requirements set forth in Section 162(m) of the
Code are satisfied, the performance bonus and incentive bonus payments to Ms.
Bronstein as described below will qualify for deduction under Section 162(m) of
the Code.
17
Given Ms. Bronstein's substantial contribution to the Company and high level
of responsibility, and the view of the Board that Ms. Bronstein continue to be
highly motivated to enhance the financial performance of the Company, the Board
unanimously recommends a vote "FOR" approval of the resolution.
PROPOSAL #4
APPROVAL OF THE PERFORMANCE BONUS AWARD AND INCENTIVE BONUS AWARD FOR THE
PRESIDENT AND CHIEF OPERATING OFFICER
On April 16, 1999, the Board of Directors and the Incentive Compensation
Subcommittee approved the terms of the performance bonus award and incentive
bonus award ("Bonus Awards") for the President and Chief Operating Officer of
the Company, subject to approval by the Company's stockholders in accordance
with the provisions of Section 162(m) of the Internal Revenue Code of 1986, as
amended. The Bonus Awards were awarded in connection with the Company's
employment agreement with Mr. Thomas. Section 162(m) generally authorizes the
deduction of compensation in excess of $1 million per taxable year payable to
the Chief Executive Officer and the four other most highly compensated executive
officers only where such compensation is based on performance and satisfy
certain other requirements and is approved by stockholders.
The affirmative vote of the holders of at least a majority of the
outstanding shares of the Company present in person or by proxy and entitled to
vote at the Annual Meeting is required to adopt the resolution to approve the
Bonus Awards granted to Mr. Thomas. If the Bonus Awards are approved by the
stockholders and certain other requirements set forth in Section 162(m) of the
Code are satisfied, the performance bonus and incentive bonus payments to Mr.
Thomas as described below will qualify for deduction under Section 162(m) of the
Code.
Given Mr. Thomas' substantial contribution to the Company and high level of
responsibility, and the view of the Board that Mr. Thomas continue to be highly
motivated to enhance the financial performance of the Company, the Board
unanimously recommends a vote "FOR" approval of the resolution.
SUMMARY OF THE PERFORMANCE BONUS AND INCENTIVE BONUS AWARDS
The following description of the Bonus Awards is intended only as a summary
and is qualified in its entirety by reference to the text of Ms. Bronstein's
employment agreement dated December 30, 1988, a copy of which was filed with the
Securities and Exchange Commission with the Company's Registration Statement
File No. 33-34895, and the amendment to such employment agreement filed herewith
and Mr. Thomas' employment agreement dated June 22, 1992, a copy of which was
filed with the Securities and Exchange Commission with the Company's Annual
Report on Form 10-K for the year ended January 29, 1994, and the amendments to
such employment agreement filed herewith. Copies of the employment agreements
and amendments also may be obtained from the Company, without charge, upon
written or oral request to Investor Relations, c/o The Wet Seal, Inc., 26972
Burbank, Foothill Ranch, CA 92610.
The performance bonus award provides that, with respect to the 1999 fiscal
year, and each succeeding fiscal year during the term of the employment
agreement, each of Ms. Bronstein's and Mr. Thomas' (each, an "Executive") base
salary would be adjusted by a performance bonus equal to 0.5% ( 1/2 of 1%) of
the pre-tax profits of the Company for the preceding fiscal year to the extent
this amount exceeds the aggregate cash dividends such Executive is eligible to
receive on her or his holdings of the Company's capital stock referable to the
same fiscal year. This bonus is not cumulative and is in lieu of any salary
review or cost of living adjustments.
The performance bonus, if any, for any fiscal year will be paid in cash
after the close of each fiscal year if such bonus is less than $25,000; if such
bonus is more than $25,000 it will be paid in equal monthly installments over
the balance of the succeeding fiscal year, but only if the pre-tax profits
criteria for such fiscal year have been achieved, as calculated in accordance
with the Company's audited books and records and certified in writing by the
Incentive Compensation Subcommittee. In determining pre-tax profits,
18
calculations will be based on generally accepted accounting principles, applied
on a consistent basis with prior years.
The incentive bonus award provides that, with respect to the 1999 fiscal
year, and each succeeding fiscal year during the term of the employment
agreement, the Executive will be entitled to receive an incentive bonus equal to
a percentage of the Company's pre-tax profits. The percentage applicable to Ms.
Bronstein is 3.5% and the percentage applicable to Mr. Thomas is 2%.
The incentive bonus, if any, for any fiscal year will be paid in cash not
later than the last day of the third month following the close of such fiscal
year, but only if the pre-tax profits criteria for such fiscal year have been
achieved, as calculated in accordance with the Company's audited books and
records and certified in writing by the Incentive Compensation Subcommittee. In
determining pre-tax profits, calculations will be based on generally accepted
accounting principles, applied on a consistent basis with prior years. (See
Executive Compensation and Other Information--Employment Agreements.)
PROPOSAL #5
ELECTION OF AUDITORS
The Board of Directors, after consideration of the recommendation of the
Audit Committee, has nominated the independent public accounting firm of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
1999. Stockholders will be asked to ratify the nomination of the Board of
Directors. Deloitte & Touche LLP has served as the Company's auditors since
fiscal 1989. Representatives of Deloitte & Touche LLP are expected to be present
at the Annual Meeting and will be available to make a statement if they desire
and are expected to respond to appropriate inquiries from the stockholders.
Although ratification of the auditors by stockholders is not legally required,
the Company's Board of Directors believes such ratification to be in the best
interest of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the filing of certain reports by
officers, directors and beneficial owners of more than 10% of the Company's
securities with the Securities and Exchange Commission and Nasdaq. Specific due
dates have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates. Based solely on a review of
copies of the filings furnished to the Company, the Company believes that during
fiscal 1998, all filing requirements were satisfied by the Company's officers,
directors and ten percent (10%) stockholders, except as set forth below.
One director, Mr. Gerald Randolph, did not file the required Form 4 on a
timely basis in connection with an exercise of options during fiscal 1998.
The Board of Directors knows of no other business to come before the AnnualSpecial Meeting. However, if any other matters are properly brought before the Annual
Meeting,special meeting, the persons named in the accompanying form of Proxyproxy or their substitutes will vote in their discretion on such matters.
The cost of this solicitation or proxies will be borne by the Company.our company. Arrangements may be made with brokerage houses, custodians, nominees and fiduciaries to send proxies and materials to their principals and, upon request, the Companyour company will reimburse them for their expenses in so doing. Our company also plans to engage a proxy solicitor in connection with this proxy statement.
STOCKHOLDER PROPOSALS FOR PRESENTATION AT 2000OUR 2005 ANNUAL MEETING
If a Stockholderstockholder of the Companyour company wishes to present a proposal for consideration at the next Annual Meetingannual meeting of Stockholders,stockholders, the proposal must be received at the executiveour principal offices of the Company no later than January 7, 2000,December 21, 2004, to be considered for inclusion in the Company's Proxy Statementour company’s proxy statement and form of Proxyproxy for that Annual Meeting.
19
EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
- --------- ---------------------------------------------------------------------------------------------- -----------
A PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF THE WET SEAL, INC...................
B SEVENTH AMENDMENT TO THE SERVICES AGREEMENT BETWEEN THE COMPANY AND KATHY BRONSTEIN (TO BE
FILED WITH DEFINITIVE PROXY)..................................................................
C FOURTH AMENDMENT TO THE SERVICES AGREEMENT BETWEEN THE COMPANY AND EDMOND THOMAS (TO BE FILED
WITH DEFINITIVE PROXY)........................................................................
D FIFTH AMENDMENT TO THE SERVICES AGREEMENT BETWEEN THE COMPANY AND EDMOND THOMAS (TO BE FILED
WITH DEFINITIVE PROXY)........................................................................
E SIXTH AMENDMENT TO THE SERVICES AGREEMENT BETWEEN THE COMPANY AND EDMOND THOMAS (TO BE FILED
WITH DEFINITIVE PROXY)........................................................................
EXHIBIT A
TEXT OF PROPOSED AMENDMENT TO THE CERTIFICATE
OF INCORPORATION OF THE WET SEAL, INC.
Set forth below is the proposed amendment
Restated Certificate of Incorporation, as Amended, of the Company which is to be submitted for the approval of the
stockholders of the Company at the Annual Meeting to be held on June 9, 1999. If
such proposed amendment is approved by the stockholders of the Company, the
Board of Directors will cause an Amendment of the Certificate of Incorporation
containing the proposed amendment to be filed with the Secretary of State of the
State of Delaware and will adopt a conforming amendment to the Company's
By-laws.
1. ARTICLE IV, SECTION 4.1
The Wet Seal, Inc.
Set forth below is the text of Article IV, Section 4.1 of the Company'sRestated Certificate of Incorporation of The Wet Seal, Inc., as proposed to be amended if Proposal # 2 is approved by the Company'sour stockholders:
"Section
“Section 4.1. NUMBER OF SHARES.Number of Shares. The total number of shares which the Corporationcorporation shall have authority to issue is SIXTY-FIVEONE HUNDRED SIXTY-TWO MILLION (65,000,000)(162,000,000), consisting of "Common Stock"“Common Stock” and "Preferred Stock"“Preferred Stock” as follows:
(a) PREFERRED STOCK.Preferred Stock. The total number of shares of Preferred Stock shall be FIVETWO MILLION (5,000,000)(2,000,000), having a par value of one cent ($0.01) per share, which may be issued from time to time in one or more series. The board of directors is hereby authorized to fix, by resolution or resolutions providing for the issue of any such series, the voting powers, if any, and the designation, preferences and rights of the shares in such series, and the qualifications, limitations or restrictions thereof, including, but not limited to, the following:
(1) the number of shares constituting that series and the distinctive designation thereof;
(2) the dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series;
(3) the voting rights, if any, of shares of that series in addition to the voting rights provided by law, and the terms of such voting rights;
(4) the terms and conditions of the conversion privileges, if any, of shares of that series, including provision for adjustment of the conversion rate in such events as the board of directors shall determine;
(5) the terms and conditions of redemption, if shares of that series shall be redeemable, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(6) the terms and amount of any sinking fund for the redemption or purchase of shares of that series, if any;
(7) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation,corporation, and the relative rights or priority, if any, of payment of shares of that series; and
(8) any other relative rights, preferences and limitations of that series.
Dividends on outstanding Preferred Stock shall be declared and paid, or set apart for payment, before any dividend shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period.
A-1
(b) COMMON STOCK.Common Stock. The total number of shares of Common Stock shall be ONE HUNDRED SIXTY MILLION (60,000,000)(160,000,000), divided into two classes designated as Class A Common Stock and Class B Common Stock, as follows: the total number of authorized shares of Class A Common Stock shall be ONE HUNDRED FIFTY MILLION (50,000,000)(150,000,000), and each share of Class A Common Stock shall have a par value of ten cents ($0.10); per share; and the total number of authorized shares of Class B Common Stock shall be TEN MILLION (10,000,000), and each share of Class B Common Stock shall have a par value of ten cents ($0.10) per share.”
EXHIBIT B
2004 STOCK INCENTIVE PLAN
Section 1. PURPOSE
The purpose of this Plan is to promote the interests of The Wet Seal, Inc. (the “Company”) by granting Awards to the officers, employees, directors and consultants of the Company and its Subsidiaries in order to (a) attract and retain officers, employees, directors and consultants of outstanding ability; (b) provide an additional incentive to selected individuals to work to increase the value of the Stock; and (c) provide each such individual with a stake in the future of the Company which corresponds to the stake of each of the Company’s stockholders.
Section 2. DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth opposite such term for purposes of this Plan and for any Award granted under this Plan. For purposes of such definitions, the singular shall include the plural and the plural shall include the singular. Unless otherwise expressly indicated, all Section references herein shall be construed to mean references to a particular Section of this Plan.
2.1 Award means an award determined in accordance with the terms of the Plan.
2.2 Board means the Board of Directors of the Company.
2.3 Change of Control means any of the following: (a) any “person” (as such term is defined in Section 3(a)(9) of 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 (a) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (1) 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), (2) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary, (3) any underwriter temporarily holding securities pursuant to an offering of such securities, or (4) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (b)); or (b) 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: (1) 50% 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, (2) 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 (3) 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 (1), (2) and (3) above shall be deemed to be a “Non-Qualifying Transaction”)."
A-2
- Notwithstanding the foregoing, to the extent that any Award granted under the Plan is subject to the provisions of Section 409A of the Code, the definition of Change of Control shall mean a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company within the meaning of Section 409A of the Code.
2.4 Code means the Internal Revenue Code of 1986, as amended.
2.5 Committee means the committee of Non-Employee Directors appointed by the Board to administer this Plan as contemplated by Section 5.
2.6 Company means The Wet Seal, Inc., a Delaware corporation, and any successor to such corporation.
2.7 Continuous Service means the Participant’s service as an officer, 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 officer, 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.
2.8 Covered Employee has the meaning set forth in Section 162(m)(3) of the Code.
2.9 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value means the closing quoted selling price for Stock on the relevant date, as reported in theWall Street Journal or a similar publication selected by the Committee.
2.11 GAAP means U.S. Generally Accepted Accounting Principles.
2.12 Immediate Family Member means, except as otherwise determined by the Committee, a Participant’s spouse, ancestors and descendants.
2.13 Incentive Stock Option means a stock option which is intended to meet the requirements of Section 422 of the Code.
2.14 Non-Employee Director means any member of the Board who qualifies as a “non-employee director” under Rule 16b-3 as promulgated under Section 16 of the Exchange Act, or any successor rule and who is also an “outside director” within the meaning of Section 162(m) of the Code.
2.15 Nonqualified Stock Option means any stock option granted under this Plan to purchase stock which is not intended to be an Incentive Stock Option.
2.16 Option means either an Incentive Stock Option or a Nonqualified Stock Option.
2.17 Option Price means the price which shall be paid to purchase one share of Stock upon the exercise of an Option granted under this Plan.
2.18 Parent Corporation means any corporation which is a parent corporation of the Company within the meaning of Section 424(e) of the Code.
2.19 Participantmeans anyone who is selected to participate in the Plan in accordance with Section 6.
2.20 Performance Goals means 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.
2.21 Performance Objective means 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 an Award of performance shares. The Committee may provide for adjustments to performance to eliminate the effects of changes for restructuring, extraordinary items, discontinued operations, other non-recurring charges, the cumulative effects of accounting changes, each as defined in GAAP, that occur during a Performance Period, in each case, to preserve the economic intent of any Award.
2.22 Performance Period means the calendar year, or such other shorter or longer period designated by the Committee, during which performance will be measured in order to determine a Participant’s entitlement to receive payment of an Award.
2.23 Performance Sharesmeans a performance grant issued pursuant to Section 10 of the Plan.
2.24 Plan means this The Wet Seal, Inc. 2004 Stock Incentive Plan, as amended from time to time.
2.25 Restricted Stockmeans an award granted pursuant to Section 9 of the Plan.
2.26 Securities Act means the Securities Act of 1933, as amended.
2.27 SEC means the Securities Exchange Commission.
2.28 Stock means the Class A Common Stock of the Company, $0.10 par value per share, of the Company.
2.29 Stock Appreciation Rightmeans an award granted pursuant to Section 11 of the Plan.
2.30 Subsidiary means 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.
Section 3. SHARES SUBJECT TO AWARDS
3.1 Subject to adjustment in accordance with Section 12, the total number of shares of Stock that shall be available for the grant of Awards under the Plan shall not exceed 10,000,000 shares of Stock;provided,that, for purposes of this limitation, any Stock subject to an Option or Award which is canceled, forfeited or expires prior to exercise or realization shall again become available for issuance under the Plan. Subject to adjustment in accordance with Section 12, no employee shall be granted, during any one (1) year period, Options to purchase more than –[_],000,000 shares of Stock and, the number of shares of Stock subject to any Awards other than Options shall not exceed [_],000,000 shares of Stock. Stock available for distribution under the Plan shall be authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner.
3.2Incentive Stock Options. Notwithstanding Section 3.1, subject to adjustment in accordance with Section 12, the aggregate number of shares of Stock with respect to which Incentive Stock Options may be granted under the Plan shall not exceed 10,000,000 of Stock;provided,that, for purposes of this limitation, any Stock subject to an Incentive Stock Option which is canceled, forfeited or expires prior to exercise or realization shall again become available for issuance under the Plan
Section 4. 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 10 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 Awards shall be made to Covered Employees under Section 10 after the date of such annual meeting, but the remainder of the Plan shall continue in effect.
Section 5. ADMINISTRATION
5.1 Administration by Committee.Subject to the further provisions of this Section 5, this Plan shall be administered by a Committee consisting solely of not less than two (2) Non Employee Directors. All references to the Committee hereinafter shall mean the Board if no such Committee has been appointed.
5.2Powers of Committee. 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 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.
5.3Committee Action Binding. 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.
5.4Delegation. 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.
5.5Indemnification. 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.
Section 6. ELIGIBILITY
Individuals eligible to receive Awards under the Plan shall be the officers, 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.
Section 7. AWARDS
Awards under the Plan may consist of Options, restricted Stock, restricted Stock Units, stock appreciation rights, performance shares, performance share units and cash bonuses. Awards shall be subject to the terms and conditions of the Plan and shall be evidenced by an agreement containing such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable.
Section 8. OPTIONS
8.1 Grant of Options. The Committee acting in its absolute discretion may grant Options to eligible individuals under this Plan from time to time to purchase shares of Stock. Each grant of an Option shall be evidenced by an Award agreement, and each Award agreement shall state whether or not the Option will be treated as an Incentive Stock Option or Nonqualified Stock Option and shall incorporate such terms and conditions as the Committee acting in its absolute discretion deems appropriate and consistent with the terms of this Plan. The aggregate Fair Market Value of the 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 each respective Option is granted. 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.
8.2 Option Price. The Option Price for each share of Stock subject to an Option shall be determined by the Committee and shall not be less than the Fair Market Value of a share of Stock on the date the Option is granted;provided,however, 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 Award agreement shall not be less than 110% of the Fair Market Value per share of Stock on the date of grant.
8.3 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 the Option is granted;provided,that, in the case of Incentive Stock Options granted to 10% Shareholders, the term of such Option shall not exceed five (5) years from the date of grant.
8.4 Exercisability.Each Option shall vest and become exercisable at a rate determined by the Committee on the date of grant.
8.5 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 Stock to be purchased. Such notice shall be accompanied by the payment in full of the Option Price. The exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of 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, (iii) if established by the Company, through a “same day sale” commitment from the optionee and a broker-dealer selected by 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, or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law. Options may not be exercised for fractional shares of Stock. A Participant’s subsequent transfer or disposition of any 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.
8.6 Prohibition on Repricing.No Option granted hereunder shall be amended to reduce the Option Price under such Option, or surrendered in exchange for a replacement Option having a lower purchase price per share;provided,that, this Section 8.6 shall not restrict or prohibit any adjustment or other action taken pursuant to Section 12 below.
Section 9. RESTRICTED STOCK
The Committee may from time to time award restricted Stock under the Plan to eligible Participants. Shares of restricted Stock may not be sold, assigned, transferred or otherwise disposed of, or 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 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, the restricted Stock 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 restricted Stock. If a share certificate is issued in respect of 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. The Committee may also award restricted Stock in the form of restricted Stock units having a value equal to an identical number of shares of Stock. Payment of restricted Stock units shall be made in Stock or in cash or in a combination thereof (based upon the Fair Market Value of the Stock on the day the Restricted Period expires), all as determined by the Committee in its sole discretion.
Section 10. PERFORMANCE SHARES AND PERFORMANCE CASH BONUSES
10.1 Performance Shares. Performance shares may be granted in the form of actual shares of Stock or Stock units having a value equal to an identical number of shares of Stock. In the event that a share certificate is issued in respect of performance shares, such certificate shall be registered in the name of the Participant, but shall be held by the Company until the time the performance shares are earned. In addition, the Committee may make cash bonuses to Participants based on the Performance Objectives described herein (performance shares and performance cash bonuses to be collectively referred to as “Performance Awards”). The Performance Objectives and the length of the Performance Period shall be determined by the Committee. The Committee shall determine in its sole discretion whether Performance Awards granted in the form of Stock units shall be paid in cash, Stock, or a combination of cash and Stock.
10.2 Performance Objectives. The Committee shall establish the Performance Objective for each Performance Award, consisting of one or more business criteria permitted as Performance Goals hereunder, one or more levels of performance with respect to each such criteria, and the amount or amounts payable or other rights that the Participant will be entitled to upon achievement of such levels of performance. The Performance Objective shall be established by the Committee prior to, or reasonably promptly following the inception of, a Performance Period but, to the extent required by Section 162(m) of the Code, by no later than the earlier of the date that is ninety (90) 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. More than one Performance Goal may be incorporated in a Performance Objective, in which case achievement with respect to each Performance Goal may be assessed individually or in combination with each other. The Committee may, in connection with the establishment of Performance Objectives for a Performance Period, establish a matrix setting forth the relationship between performance of two or more Performance Goals and the amount of the Performance Award payable for that Performance Period. The level or levels of performance specified with respect to a Performance Goal may be established in absolute terms, as objectives relative to performance in prior periods, as an objective compared to the performance of one or more comparable companies or an index covering multiple companies, or otherwise as the Committee may determine. Performance Objectives shall be objective and shall otherwise meet the requirements of Section 162(m) of the Code. Performance Objectives may differ for Performance Awards granted to any one Participant or to different Participants. A Performance Award to a Participant who is a Covered Employee shall (unless the Committee determines otherwise) provide that in the event of the Participant’s termination of Continuous Service prior to the end of the Performance Period for any reason, such Performance Award will be payable only (i) if the applicable Performance Objectives are achieved and (ii) to the extent, if any, as the Committee shall determine.
10.3 Certification. Following the completion of each Performance Period, the Committee shall certify in writing, in accordance with the requirements of Section 162(m) of the Code, whether the Performance Objectives and other material terms of the Performance Award have been achieved or met. Unless the Committee determines otherwise, Performance Awards shall not be settled until the Committee has made the certification specified under this Section 10.3.
10.4 Adjustment. The Committee may, in its discretion, reduce or eliminate the amount of payment with respect to the Performance Award to a Covered Employee, notwithstanding the achievement of specified Performance Objectives;provided,that, no such adjustment shall be made which would adversely impact a Participant following a Change of Control.
10.5 Maximum Amount Payable. Subject to Section 12, the maximum number of performance shares subject to any Performance Award to a Covered Employee is [_,000,000] for each 12 months during the Performance Period (or, to the extent the performance share units are paid in cash, the maximum dollar amount of any such Award is the equivalent cash value, based on the Fair Market Value of the Stock, of such number of shares
of Stock on the last day of the Performance Period). If the Performance Award is a performance cash bonus, a Participant shall not be granted performance cash bonuses for all of the Performance Periods commencing in a calendar year that permit the Participant, in the aggregate, to earn a cash payment in excess of $3,000,000 per calendar year.
Section 11. STOCK APPRECIATION RIGHTS
11.1 Grant of Stock Appreciation Rights. The Committee may, in its discretion, either alone or in connection with the grant of another Award, grant stock appreciation rights in accordance with the Plan, the terms and conditions of which shall be set forth in an Award agreement. If granted in connection with an Option, a stock appreciation right shall cover the same number of shares of 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.
11.2 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.
11.3 Stock AppreciationRight Related to an Option.
(a) 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 Stock on the date of exercise exceeds the Option Price specified in the related Incentive Stock Option Award agreement.
(b) 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 Stock on the date preceding the date of exercise of such stock appreciation right over the per share Option Price under the related Option, by (B) the number of shares of 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.
(c) 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 Stock as to which the Option is exercised or surrendered.
11.4 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. 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) the number of shares of 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 Award agreement evidencing the stock appreciation right at the time it is granted.
11.5 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 Stock with respect to which the stock appreciation right is being exercised. If requested by the Committee, the Participant shall deliver the Award agreement evidencing the stock appreciation right being
exercised and the Award agreement evidencing any related Option to the Company who shall endorse thereon a notation of such exercise and return such Award agreement to the Participant.
11.6 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 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 of Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash.
Section 12. ADJUSTMENT
12.1 Corporate Transaction or Event. In the event of any dividend or other distribution (whether in the form of cash, 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 Stock or other securities of the Company, issuance of warrants or other rights to purchase Stock or other securities of the Company, or other similar corporate transaction or event (an “Event”), and in the Committee’s opinion, such Event affects the Stock such that an adjustment is determined by the Committee to be 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) the number and kind of shares of Stock (or other securities or property) with respect to which Awards may be granted or awarded; (ii) the number and kind of shares of Stock (or other securities or property) subject to outstanding Awards; and (iii) the grant or exercise price with respect to any Award. The Committee determination under this Section 12.1 shall be final, binding and conclusive. Any such adjustment made to an Incentive Stock Option shall be made in accordance with Section 424(a) of the Code unless otherwise determined by the Committee, in its sole discretion.
12.2 Termination; Cash-Out. Upon the occurrence of an Event in which outstanding Awards are not to be assumed or otherwise continued following such an Event, the Committee may, in its discretion, terminate any outstanding Award without a Participant’s consent and (i) provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Committee in its sole discretion and/or (ii) provide that such Award shall be exercisable (whether or not vested) as to all shares covered thereby for at least ten (10) days prior to such Event.
12.3 No Restrictions on Adjustments. 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 Stock or the rights thereof or which are convertible into or exchangeable for 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.
Section 13. AMENDMENT OR TERMINATION
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 12, 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.
Section 14. SPECIAL PROVISIONS
14.1Change of Control. Unless otherwise provided in an Award agreement, upon a Change of Control in which outstanding Awards are not terminated in accordance with Section 12 of the Plan, all Options and Stock Appreciation Rights, granted under this Plan prior to such Change of Control shall immediately become vested and exercisable to the full extent of the original grant and all restrictions or performance conditions, if any, on any other Awards 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.
14.2Forfeiture. Notwithstanding anything in the Plan to the contrary and unless otherwise specifically provided in an Award agreement, in the event of a serious breach of conduct by a Participant or former Participant (including, without limitation, any conduct prejudicial to or in conflict with the Company or any Subsidiary) the Committee may (i) cancel any outstanding Award granted to such Participant or former Participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within 1 year following the exercise or payment of an Award, require such Participant or former Participant to repay to the Company any gain realized or payment received upon the exercise or payment of such Award (with such gain or payment valued as of the date of exercise or payment). Such cancellation or repayment obligation shall be effective as of the date specified by the Committee. Any repayment obligation shall be satisfied in cash or, if permitted in the sole discretion of the Committee, it may be satisfied in shares of Stock (based upon the Fair Market Value of the share of Stock on the date of payment), and the Committee may provide for an offset to any future payments owed by the Company or any Subsidiary to the Participant or former Participant if necessary to satisfy the repayment obligation. The determination of whether a Participant or former Participant has engaged in a serious breach of conduct or any activity in competition with any of the businesses of the Company or any Subsidiary shall be determined by the Committee in good faith and in its sole discretion.
Section 15. GENERAL PROVISIONS
15.1 Representations. 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.
15.2 Restrictions. All certificates for 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 SEC, any stock exchange upon which the 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 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.
15.3 Section 16. 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 15.3, such provision to the extent possible shall be interpreted and/or deemed amended so as to avoid such conflict.
15.4 Section 162(m). To the extent the Committee issues any Award which is intended to be exempt from the application of Section 162(m) of the Code, the Committee may, without stockholder or grantee approval, amend the Plan or the relevant Award agreement retroactively or prospectively to the extent it determines necessary in order to comply with any subsequent clarification of Section 162(m) of the Code required to preserve the Company’s Federal income tax deduction for compensation paid pursuant to any such Award.
15.5 No Rights as Shareholder. 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 Stock subject to
an Award until a certificate or certificates evidencing shares of Stock shall have been issued to the Participant and, subject to Section 12, 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.
15.6 Gender. Where the context requires, words in any gender shall include any other gender.
15.7 Headings. Headings of Sections are inserted for convenience and reference; they do not constitute any part of this Plan.
15.8 Expiration of the Plan. Subject to earlier termination pursuant to Section 13, no Award may be granted following the ten (10) year anniversary of the Effective Date and except with respect to outstanding Awards, this Plan shall terminate.
15.9 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.
15.10 Withholding. Upon (a) disposition of shares of Stock acquired pursuant to the exercise of an Incentive Stock Option granted pursuant to the Plan within two (2) years of the grant of the Incentive Stock Option or within one (1) 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), 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 have the Company withhold shares of 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 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 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.
15.11 Nontransferability, Beneficiaries. Unless otherwise determined by the Committee with respect to the transferability of Awards (other than Incentive 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.
15.12 Governing Law. The law of the State of California shall apply to all Awards and interpretations under the Plan regardless of the effect of such state’s conflict of laws principles.
15.13 Unfunded Status. The Plan is intended to constitute an “unfunded” plan for incentive compensation and nothing contained in the Plan shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company. To the extent applicable, this Plan is intended to comply with Section 409A of the Code and the Committee shall interpret and administer the Plan in accordance therewith. In addition, any provision in this Plan document that is determined to violate the requirements of Section 409A shall be void and without effect. In addition, any provision that is required to appear in this Plan document that is not expressly set forth shall be deemed to be set forth herein, and the Plan shall be administered in all respects as if such provisions were expressly set forth.
Please Detach and Mail in the Envelope Provided -
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PROXY THE WET SEAL, INC. PROXY--1999 ANNUAL MEETING PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING JUNE 9, 1999
| PROXY | THE WET SEAL, INC. – SPECIAL MEETING | PROXY |
Solicited on behalf of the Board of Directors
for the Special Meeting, 2004
The undersigned, a stockholder of The Wet Seal, Inc., a Delaware corporation, appoints Kathy BronsteinJoseph Deckop and Edmond Thomas,Douglas C. Felderman, or either of them, hishis/her/its true and lawful agents and proxies, each with full power of substitution, to vote all of the shares of stock that the undersigned would be entitled to vote if personally present at the AnnualSpecial Meeting of Stockholders of The Wet Seal, Inc. to be held at the Westin South Coast Plaza, 686 Anton Blvd.our principal offices located at 26972 Burbank, Foothill Ranch, California 92610 on, Costa Mesa,
California 92626 on June 9, 1999,December, 2004, at 10:00 a.m., local time, and any adjournment thereof, with respect to the following matters which are more fully explained in theour Proxy Statement of the Company dated May 4, 1999,, 2004, receipt of which is acknowledged by the undersigned:
NEW ADDRESS:
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UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, AND 3 AS MORE SPECIFICALLY SET FORTH IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
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address change
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 1, 2 AND 3.
Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should sign. If signer is a corporation, please give full corporate name and have a duly authorized officer sign stating title. If signer is a partnership, please sign in partnership name by authorized person.
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