<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO. 333-4246
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE WET SEAL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5651 33-0415940
(State of Incorporation) (Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
Number)
</TABLE>
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
(714) 583-9029
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
EDMOND S. THOMAS
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
(714) 583-9029
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ALAN SIEGEL, ESQ. MICHAEL A. SCHWARTZ, ESQ.
AKIN, GUMP, STRAUSS, WILLKIE FARR & GALLAGHER
HAUER & FELD, L.L.P. ONE CITICORP CENTER
399 PARK AVENUE 153 EAST 53RD STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 872-1000 (212) 821-8000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 17, 1996
3,100,000 SHARES
[LOGO]
CLASS A COMMON STOCK
($.10 PAR VALUE)
Of the 3,100,000 shares (the "Shares") of Class A Common Stock, $.10 par
value ("Class A Common Stock"), of The Wet Seal, Inc. (the "Company") being
offered hereby, 765,000 Shares are being offered by the Company and 2,335,000
Shares are being offered by certain selling stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of Shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Company's authorized common stock consists of Class A Common Stock and
Class B Common Stock, $.10 par value ("Class B Common Stock" and, together with
the Class A Common Stock, the "Common Stock"). The Class A Common Stock is
substantially identical to the Class B Common Stock, except that holders of
Class A Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to two votes per share on matters submitted to a vote
of stockholders. See "Description of Capital Stock." Following consummation of
the Offering, the shares of Class B Common Stock will comprise approximately
41.5% (38.1% if the Underwriters' overallotment option is exercised in full) of
the total voting power of the Company.
The Class A Common Stock is traded on the Nasdaq National Market under the
symbol "WTSLA." On May 3, 1996, the last reported sale price of the Class A
Common Stock on the Nasdaq National Market was $14.25 per share. See "Price
Range of Class A Common Stock and Dividend Policy."
FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THE OFFERING, SEE
"RISK FACTORS" ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS (2)
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $315,000 payable by the Company and
the Selling Stockholders in proportion to the proceeds received by each of
them hereby.
(3) Certain stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 465,000 shares of Class A Common Stock at the
Price to Public less the Underwriting Discounts and Commissions shown above,
solely to cover overallotments, if any. If this option is exercised in full,
the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholders will be $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Class A Common Stock offered hereby are being offered by the
several Underwriters, subject to prior sale and acceptance by the Underwriters
and subject to their right to reject any order in whole or in part. It is
expected that the Class A Common Stock will be available for delivery on or
about , 1996 at the offices of Schroder Wertheim & Co. Incorporated,
New York, New York.
SCHRODER WERTHEIM & CO. MONTGOMERY SECURITIES
, 1996
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 8
Capitalization................................. 8
Price Range of Class A Common Stock and
Dividend Policy............................... 9
Selected Financial Data........................ 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 11
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 16
Management..................................... 23
Description of Capital Stock................... 26
Principal and Selling Stockholders............. 28
Underwriting................................... 30
Experts........................................ 31
Legal Matters.................................. 31
Available Information.......................... 31
Incorporation of Certain Documents By
Reference..................................... 31
Index to Consolidated Financial Statements..... F-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS
AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMPANY'S CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVERALLOTMENT OPTION WILL NOT BE
EXERCISED. UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO THE
WET SEAL, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, CONTEMPO CASUALS, INC., AND
"CONTEMPO CASUALS" REFERS TO CONTEMPO CASUALS, INC. REFERENCES TO FISCAL YEARS
HEREIN ARE TO THE COMPANY'S 52- OR 53-WEEK FISCAL YEAR WHICH ENDS ON THE
SATURDAY CLOSEST TO JANUARY 31 OF THE FOLLOWING CALENDAR YEAR. FOR EXAMPLE,
"FISCAL 1995" REFERS TO THE COMPANY'S FISCAL YEAR ENDED FEBRUARY 3, 1996. FISCAL
1995 CONSISTED OF 53 WEEKS.
THE COMPANY
The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 362 retail
stores in 34 states and Puerto Rico under the "Wet Seal" and "Contempo Casuals"
names. The Company sells moderately priced, fashionable, casual apparel and
accessory items designed for women with a young, active lifestyle.
In July 1995, the Company acquired the 237-store chain of Contempo Casuals
stores, formerly the Company's major national direct competitor. The acquisition
expanded the Company's operations into regions not previously served by the
Company and reduced the percentage of total stores the Company operates in
California from more than 50% to approximately 35%. The Company believes
Contempo Casuals has a strong identity among young women and therefore the
Company will continue to operate most of such stores under the Contempo Casuals
name. At the time of acquisition, the Company substantially completed the
integration of Contempo Casuals, including the buying, merchandising, store
operations, information systems and distribution functions. As a result, the
Company achieved significant economies of scale and increased purchasing power
in the second half of fiscal 1995. The Company reported net income of $5.8
million in fiscal 1995, as compared to a net loss of $1.0 million in fiscal
1994.
Through both its Wet Seal and Contempo Casuals stores, the Company has built
a strong reputation among its target customers as a destination store for
fashionable young women's apparel and accessories. The Company offers a broad
selection of brand name and Company-developed apparel and accessories selected
and designed to appeal to the tastes of fashion-conscious young women and other
young-minded customers. The Company attempts to differentiate itself by
frequently updating its product offerings to emphasize freshness of merchandise
and by remerchandising its stores approximately every six weeks to reflect the
changing tastes of the Company's target customers. In addition, the Company
recently expanded its product offerings to include an eclectic selection of
gifts, accessories and cosmetics to more fully address its customers'
lifestyles. Based upon the success of the Company's expanded product offerings,
the Company recently introduced "The Girl's Room," a boutique-within-a-store
that features these products. The Company believes The Girl's Room broadens the
Company's appeal as a destination store for young women. The Company has added
The Girl's Room in approximately 60 stores and currently plans to add The Girl's
Room in approximately 100 additional stores during fiscal 1996.
The Company believes that its increased size and national presence position
it to benefit from the growth of the teenage population, which is projected by
the U.S. Bureau of the Census to grow at approximately twice the rate of growth
of the overall population over the next 10 years. The Company also believes that
its strong balance sheet and experienced management team will enable it to
capitalize on additional opportunities that may result from the expected
continuing changes in the competitive environment of the retailing industry.
3
<PAGE>
THE OFFERING (1)
<TABLE>
<S> <C>
Class A Common Stock offered:
By the Company....................... 765,000 shares
By the Selling Stockholders.......... 2,335,000 shares
Common Stock to be outstanding after
the Offering (2):
Class A Common Stock................. 9,794,566 shares (3)
Class B Common Stock................. 3,472,665 shares
Total.............................. 13,267,231 shares
Use of proceeds........................ For general corporate purposes, which may include
repayment of indebtedness. The Company will not
receive any of the proceeds from the sale of Shares
by the Selling Stockholders. See "Use of Proceeds."
Nasdaq National Market symbol (Class A
Common Stock)......................... "WTSLA"
</TABLE>
------------------------
(1) The offering of shares of Class A Common Stock offered hereby by the
Underwriters is referred to herein as the "Offering."
(2) The Class A Common Stock is substantially identical to the Class B Common
Stock, except that holders of Class A Common Stock are entitled to one vote
per share and holders of Class B Common Stock are entitled to two votes per
share on matters submitted to a vote of stockholders. Each share of Class B
Common Stock is convertible at the option of the holder thereof into one
share of Class A Common Stock. See "Description of Capital Stock."
(3) Excludes (i) 627,500 shares of Class A Common Stock issuable as of May 6,
1996 upon the exercise of outstanding stock options granted under the
Company's 1990 Long-Term Incentive Plan and 1994 Long-Term Incentive Plan
(the "Stock Option Plans") at a weighted average exercise price of
approximately $5.14 per share, of which options to acquire 277,500 shares
are exercisable within 60 days after the date of this Prospectus; and (ii)
an aggregate of 101,932 shares available for future grant under the Stock
Option Plans.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
1991 1992 1993 1994 1995 (1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales..................................... $ 119,893 $ 149,744 $ 140,129 $ 132,997 $ 266,695
Gross margin.............................. 30,634 36,158 27,037 28,450 66,069
Net income (loss)......................... 4,229 3,564 (2,378) (1,013) 5,815
Net income (loss) per common share........ $ 0.35 $ 0.29 $ (0.19) $ (0.08) $ 0.47
Weighted average number of common shares
outstanding.............................. 12,217 12,221 12,228 12,235 12,387
OTHER DATA:
Ratio of current assets to current
liabilities.............................. 2.4 2.5 2.7 2.8 1.5
Square footage of leased space at year
end...................................... 466,178 544,820 583,462 596,685 1,530,891
Average sales per square foot of leased
space (2)................................ $ 298 $ 297 $ 247 $ 226 $ 229
Average sales per store (2)............... $1,181,000 $1,270,000 $1,092,000 $1,008,000 $ 976,000
Comparable store sales increase (decrease)
(3)...................................... (11.9)% 2.0% (14.2)% (9.2)% (4.1)%
Number of stores:
Open at beginning of year............... 93 112 125 129 133
Acquired during the year................ 0 0 0 0 237
Opened during the year.................. 21 15 10 6 3
Closed during the year.................. (2) (2) (6) (2) (9)
--------- --------- --------- --------- ---------
Open at year end...................... 112 125 129 133 364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AT FEBRUARY 3, 1996
-------------------------
ACTUAL AS ADJUSTED(4)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 57,153 $ 67,377
Working capital....................................................................... 26,051 36,275
Total assets.......................................................................... 117,564 127,788
Total debt............................................................................ 9,000 9,000
Total stockholders' equity............................................................ 57,735 67,959
</TABLE>
--------------------------
(1) The Company's fiscal 1995 data include the results of operations of Contempo
Casuals since July 1, 1995.
(2) In fiscal 1995, the 53rd week of sales was excluded from "Sales" for
purposes of calculating "Average sales per square foot of leased space" and
"Average sales per store" in order to make fiscal 1995 comparable to prior
years.
(3) In fiscal 1995, "Comparable store sales" were calculated by adding the first
week of fiscal 1995 to fiscal 1994 sales in order to make fiscal 1994
comparable to fiscal 1995. Comparable store sales are defined as sales in
stores that were open throughout the full fiscal year and throughout the
full prior fiscal year.
(4) As adjusted to reflect the issuance and sale of the 765,000 shares of Class
A Common Stock offered by the Company hereby at an assumed offering price of
$14.25 per share, and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
RECENT DEVELOPMENTS
The Company reported net income of $722,000 ($0.06 per share) for the first
quarter of fiscal 1996 compared to a loss of $671,000 ($0.05 per share) for the
first quarter of fiscal 1995. During the first quarter of fiscal 1996,
comparable store sales increased 4.3% compared to a decrease of 6.7% for the
first quarter of fiscal 1995.
5
<PAGE>
RISK FACTORS
POTENTIAL PURCHASERS OF THE CLASS A COMMON STOCK SHOULD CAREFULLY CONSIDER
THE FOLLOWING FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, BEFORE DECIDING TO PURCHASE SHARES OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
DECLINE IN COMPARABLE STORE SALES; PRIOR LOSSES
The Company's comparable store sales declined by 14.2%, 9.2% and 4.1% during
fiscal 1993, 1994 and 1995, respectively. The Company believes these declines
were primarily attributable to an industry-wide decrease in sales of women's
apparel, due in part to a shift in consumer discretionary spending. This has
resulted in reduced profitability for many women's apparel retailers and has led
a large number of retailers, including a number of specialty retailers, to close
stores or go out of business. There can be no assurance that these and other
factors will not continue to result in declining comparable store sales, which
could adversely affect the Company's profitability.
The Company incurred net losses in fiscal 1993 and 1994 of $2.4 million and
$1.0 million, respectively. These losses were due to a combination of factors,
including adverse economic conditions in the Southern California market and
declines in the Company's comparable store sales. Following the Company's
acquisition of Contempo Casuals, the Company achieved greater economies of scale
and improved margins, which resulted in the Company's return to profitability in
fiscal 1995. There can be no assurance that the Company will continue to be
profitable in future years. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CHANGES IN FASHION TRENDS
The Company's profitability is largely dependent upon its ability to
anticipate the changing fashion tastes of its customers and to respond to those
changing tastes in a timely manner. The failure of the Company to anticipate,
identify or react appropriately to changing styles, trends or brand preferences
could lead to, among other things, lower sales, excess inventories and more
frequent markdowns, which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, fashion misjudgments
could adversely affect the Company's image with its customers, which could
materially adversely affect the Company's long-term sales, profitability and
growth.
DUPLICATE STORE LOCATIONS
As a result of the acquisition of Contempo Casuals, the Company currently
operates both a Contempo Casuals store and a Wet Seal store in 64 malls, which
contain approximately 130 of the Company's stores. Such duplicate locations
compete for the same sales, which has resulted in a decrease in sales volume and
profitability at these stores. The Company has attempted to reduce the level of
competition between its duplicate stores by differentiating the merchandise mix
in such stores or by closing duplicate locations. The Company is also
considering converting duplicate stores to test new retail concepts. There can
be no assurance that the Company will be able to reduce comparable store sales
declines or improve the profitability of its duplicate stores.
COMPETITION
The young women's retail apparel industry is highly competitive. The Company
competes for sales primarily with specialty apparel retailers, department stores
and certain other apparel retailers, many of which have significantly greater
financial, marketing and other resources available to them. In addition, the
Company competes for favorable site locations and lease terms in shopping malls.
Competition may significantly increase in the future, which could adversely
affect the Company.
ECONOMIC CONDITIONS AND CONSUMER SPENDING
As with other retail businesses, the Company's business is sensitive to
consumer spending patterns and preferences. The Company's growth, sales and
profitability may be adversely affected by unfavorable local, regional or
national economic conditions. The Company is especially affected by economic
conditions in California, where approximately 35% of its stores are located.
Substantially all of the Company's stores are located in regional shopping
malls. The Company's sales are derived, in part, from the high volume of traffic
in such malls. The Company therefore benefits from the ability of mall "anchor"
tenants and other area attractions to generate consumer traffic in the vicinity
of the Company's stores and the continuing popularity of malls as shopping
destinations. Sales volume and mall traffic may be adversely affected by
economic downturns in a particular area, competition from non-mall
6
<PAGE>
retailers and other malls, the closing of anchor department stores, and declines
in the desirability of the shopping environment in a particular mall, all of
which could adversely affect the Company's sales and profitability.
The Company's sales and profitability also depend upon the continued demand
by the Company's customers for fashionable, casual apparel. If the demand for
apparel and related merchandise were to decline, the Company's financial
condition and results of operations could be materially and adversely affected.
Shifts in consumer discretionary spending to other goods such as electronic
equipment, computers and music could also adversely affect the Company.
SEASONALITY
The retail apparel industry is highly seasonal. The Company generates its
highest level of sales during the Christmas season (beginning the week of
Thanksgiving and ending the first Saturday after Christmas) and the "back to
school" season (beginning the last week of July and ending the first week of
September). The Company's profitability depends, to a significant degree, on the
sales generated during these peak periods. Any decrease in sales or margins
during these periods, whether as a result of then current economic conditions,
poor weather or other factors beyond the control of the Company, could have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the performance
of its senior management, particularly Kathy Bronstein, Vice Chairman and Chief
Executive Officer, and Edmond Thomas, President and Chief Operating Officer.
While the Company has employment agreements with Ms. Bronstein and Mr. Thomas
that extend through January 30, 2001, there can be no assurance that the
services of either of such executives will remain available to the Company
pursuant to such employment agreements. The employment agreements of each of Ms.
Bronstein and Mr. Thomas contain non-competition covenants. The Company
maintains "key man" life insurance on the life of Ms. Bronstein in the amount of
$5 million. See "Management -- Employment Agreements."
VOTING RIGHTS OF COMMON STOCK; CONTROL BY SELLING STOCKHOLDERS
The voting rights of Class A Common Stock are limited by the Company's
Restated Certificate of Incorporation (the "Restated Certificate"). On all
matters with respect to which the Company's stockholders have a right to vote,
including for the election of directors, a holder of Class A Common Stock is
entitled to one vote per share, while a holder of Class B Common Stock is
entitled to two votes per share. Except as otherwise required by law, Class A
Common Stock and Class B Common Stock vote together as a single class.
Prior to the Offering, the holders of Class B Common Stock (including the
Selling Stockholders) represented 63.4% of the voting power of all classes of
the Company's capital stock, of which shares representing 58.2% of the voting
power were owned in the aggregate by Gross-Teitelbaum Holdings Inc., 2927977
Canada Inc. ("GTHI Sub"), Suzy Shier Inc. ("Suzy Shier") and Los Angeles Express
Fashions Inc. (collectively, the "Trust Stockholders"). Each of the Trust
Stockholders is controlled directly or indirectly by Irving Teitelbaum, Chairman
of the Board, and Stephen Gross, Secretary and a director of the Company.
Following consummation of the Offering, the holders of Class B Common Stock
will own shares representing 41.5% (38.1% if the Underwriters' overallotment
option is exercised in full) of the voting power of all classes of the Company's
capital stock, of which shares representing 35.9% (32.5% if the Underwriters'
overallotment is exercised in full) of the voting power will be owned by the
Trust Stockholders. As a result, after the Offering, the Trust Stockholders may
be able to direct the election of all the directors of the Company and determine
the outcome of any matter submitted to a vote of stockholders, including any
merger, consolidation or sale of all or substantially all of the Company's
assets, except as otherwise provided by law. The Trust Stockholders are parties
to a voting trust agreement that will terminate upon consummation of the
Offering.
7
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of Class A
Common Stock offered hereby by the Company (at an assumed offering price of
$14.25 per share, less underwriting discounts and commissions and offering
expenses payable by the Company) are estimated to be $10.2 million. The net
proceeds will be used for general corporate purposes, which may include
repayment of certain indebtedness, remodeling and opening of stores and
upgrading of the Company's point-of-sale system. The Company will not receive
any of the proceeds from the sale of Shares by the Selling Stockholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 3, 1996, and as adjusted to reflect the issuance and sale of the shares
of Class A Common Stock offered hereby by the Company (at an assumed offering
price of $14.25 per share, less estimated underwriting discounts and commissions
and offering expenses payable by the Company) and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
FEBRUARY 3, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.................................................................. $ 5,264 $ 5,264
--------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized; none issued and
outstanding.................................................................. -- --
Class A Common Stock, $.10 par value, 20,000,000 shares authorized; 5,687,066
shares issued and outstanding (8,787,066 shares as adjusted) (1)(2).......... 568 879
Class B Common Stock, $.10 par value, 10,000,000 shares authorized; 6,807,665
shares issued and outstanding (4,472,665 shares as adjusted) (2)............. 681 447
Additional paid-in capital...................................................... 38,568 48,715
Retained earnings............................................................... 17,918 17,918
--------- -----------
Total stockholders' equity.................................................... 57,735 67,959
--------- -----------
Total capitalization........................................................ $ 62,999 $ 73,223
--------- -----------
--------- -----------
</TABLE>
------------------------
(1) Excludes (i) 627,500 shares of Class A Common Stock issuable as of April 29,
1996 upon the exercise of outstanding stock options granted under the Stock
Option Plans at a weighted average exercise price of approximately $5.14 per
share, of which options to acquire 277,500 shares are exercisable within 60
days after the date of this Prospectus; and (ii) an aggregate of 101,932
shares available for future grant under the Stock Option Plans.
(2) As adjusted amounts exclude (i) the effect of the conversion of 1,000,000
shares of Class B Common Stock into an equal number of shares of Class A
Common Stock during fiscal 1996 and (ii) 7,500 shares of Class A Common
Stock that were issued upon the exercise of options during fiscal 1996.
8
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY
The Class A Common Stock trades on the Nasdaq National Market ("Nasdaq")
under the symbol "WTSLA." The closing sale price of the Class A Common Stock as
reported by Nasdaq on May 3, 1996 was $14.25.
The following table reflects, for the periods indicated, the high and low
sale prices of the Class A Common Stock as reported by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
Fiscal 1994
First Quarter......................................................... $ 4.500 $ 3.000
Second Quarter........................................................ 4.250 2.250
Third Quarter......................................................... 3.875 2.375
Fourth Quarter........................................................ 5.375 3.250
Fiscal 1995
First Quarter......................................................... $ 4.500 $ 3.250
Second Quarter........................................................ 6.000 3.625
Third Quarter......................................................... 6.625 4.750
Fourth Quarter........................................................ 8.625 5.625
Fiscal 1996
First Quarter (through May 3, 1996)................................... $ 16.000 $ 7.063
</TABLE>
As of April 26, 1996, there were 358 shareholders of record of Class A
Common Stock. The number of beneficial owners of Class A Common Stock is
estimated to be in excess of 2,000.
The Company has reinvested earnings in its business and has never paid any
cash dividends to holders of the Class A Common Stock. The declaration and
payment of future dividends are at the sole discretion of the Board of Directors
and will depend upon the Company's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of
Directors. The Company's lines of credit and outstanding term loan currently
prohibit the Company from paying cash dividends.
9
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER DATA)
The statement of operations data presented below for fiscal 1991, 1992,
1993, 1994 and 1995 and the balance sheet data at the end of the fiscal periods
presented have been derived from the Consolidated Financial Statements of the
Company. The following Selected Financial Data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto audited by Deloitte
& Touche LLP, independent accountants, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" incorporated by reference and
appearing elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------------
1991 1992 1993 1994 1995 (1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Sales.................................. $ 119,893 $ 149,744 $ 140,129 $ 132,997 $ 266,695
Cost of sales.......................... 89,259 113,586 113,092 104,547 200,626
--------- --------- --------- --------- ---------
Gross margin........................... 30,634 36,158 27,037 28,450 66,069
Selling, general and administrative
expense............................... 24,498 30,890 31,576 30,698 57,531
Interest income, net................... (926) (656) (573) (882) (1,410)
--------- --------- --------- --------- ---------
Net operating expenses................. 23,572 30,234 31,003 29,816 56,121
--------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes............ 7,062 5,924 (3,966) (1,366) 9,948
Provision (benefit) for income taxes... 2,833 2,360 (1,588) (353) 4,133
--------- --------- --------- --------- ---------
Net income (loss)...................... $ 4,229 $ 3,564 $ (2,378) $ (1,013) $ 5,815
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share..... $ 0.35 $ 0.29 $ (0.19) $ (0.08) $ 0.47
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding.................... 12,217 12,221 12,228 12,235 12,387
OTHER DATA:
Ratio of current assets to current
liabilities........................... 2.4 2.5 2.7 2.8 1.5
Square footage of leased space at year
end................................... 466,178 544,820 583,462 596,685 1,530,891
Average sales per square foot of leased
space (2)............................. $ 298 $ 297 $ 247 $ 226 $ 229
Average sales per store (2)............ $1,181,000 $1,270,000 $1,092,000 $1,008,000 $ 976,000
Comparable store sales increase
(decrease) (3)........................ (11.9)% 2.0% (14.2)% (9.2)% (4.1)%
Number of stores:
Open at beginning of year............ 93 112 125 129 133
Acquired during the year............. 0 0 0 0 237
Opened during the year............... 21 15 10 6 3
Closed during the year............... (2) (2) (6) (2) (9)
--------- --------- --------- --------- ---------
Open at year end................... 112 125 129 133 364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 14,885 $ 18,287 $ 18,331 $ 25,369 $ 57,153
Working capital........................ 14,433 17,035 18,874 22,473 26,051
Total assets........................... 63,359 68,665 66,434 67,298 117,564
Total debt............................. 0 0 0 0 9,000
Total stockholders' equity............. 50,470 54,085 51,729 50,724 57,735
</TABLE>
--------------------------
(1) The Company's fiscal 1995 data include the results of operations of Contempo
Casuals since July 1, 1995.
(2) In fiscal 1995, the 53rd week of sales was excluded from "Sales" for
purposes of calculating "Average sales per square foot of leased space" and
"Average sales per store" in order to make fiscal 1995 comparable to prior
years.
(3) In fiscal 1995, "Comparable store sales" were calculated by adding the first
week of fiscal 1995 to fiscal 1994 sales in order to make fiscal 1994
comparable to fiscal 1995. Comparable store sales are defined as sales in
stores that were open throughout the full fiscal year and throughout the
full prior fiscal year.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 362 retail
stores in 34 states and Puerto Rico under the "Wet Seal" and "Contempo Casuals"
names. The Company sells moderately priced, fashionable, casual apparel and
accessory items designed for women with a young, active lifestyle.
Throughout the late 1980s and early 1990s, the Company pursued a rapid store
expansion program, growing from 36 stores at the end of 1986 to 125 stores by
the end of 1992. Beginning in 1992, the Company's business was negatively
affected by a difficult retail apparel market and by the concentration of the
Company's stores in California, which in general experienced more difficult
economic conditions than other areas of the country. These conditions have led a
large number of retailers, including a number of specialty retailers, to close
stores or go out of business. While the Company has experienced declines in
comparable store sales in each of the last three fiscal years, it has increased
its gross margin and cash flow from operations in each of these years. The
Company believes it has been able to manage its business effectively and
maintain a strong balance sheet during this difficult period as a result of the
significant experience of its management team, its careful management of
inventory and its focus on controlling operating expenses.
On July 1, 1995, the Company acquired Contempo Casuals. The purchase price
consisted of a $100,000 cash payment and the issuance of 254,676 shares of Class
A Common Stock, which had a market value of $1,178,000 as of the acquisition
date. In addition, the Company assumed approximately $27,700,000 of current
liabilities of Contempo Casuals. The transaction was accounted for under the
purchase method. The acquisition increased the number of stores the Company
operates from 133 stores at the time of the acquisition to 364 stores as of
February 3, 1996 and reduced the percentage of total stores the Company operates
in California from more than 50% to approximately 35%.
The Company's return to profitability in fiscal 1995 was directly related to
the acquisition of Contempo Casuals. Acquiring Contempo Casuals enabled the
Company to significantly reduce fixed expenses as a percentage of sales through
the consolidation and integration of the two companies' management teams,
corporate offices and distribution centers. This process was substantially
completed at the time of the acquisition. As a result of the acquisition of
Contempo Casuals and the Company's strong balance sheet, the Company believes it
is well-positioned to capitalize on the growth in the teenage population and the
expected continuing changes in the competitive environment of the retailing
industry.
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
The following discussion and analysis of results of operations includes a
comparison of the results of operations for fiscal 1995, which contained both
the full year results of the Wet Seal stores and the seven month results of the
Contempo Casuals stores, to fiscal 1994, which contained only the results of the
Wet Seal stores. Because the Contempo Casuals acquisition occurred on July 1,
1995, fiscal 1995 results do not include the results of operations of Contempo
Casuals for the first five months of the fiscal year, which historically have
relatively lower sales volumes and profitability compared to the remaining
months of the fiscal year. Therefore, the results of operations for fiscal 1995
are not directly comparable to those of prior years and may not be directly
comparable to the results in future years.
Comparable store sales are defined as sales in stores that were open
throughout the full fiscal year and throughout the full prior fiscal year. In
the last seven months of fiscal 1995, comparable store sales included sales
results of Contempo Casuals stores as compared to sales results of Contempo
Casuals stores in the corresponding period in the prior year, during which time
Contempo Casuals was under different ownership.
11
<PAGE>
The following table sets forth selected income statement data of the Company
expressed as a percentage of sales for the fiscal years indicated:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
-------------------------------
FISCAL FISCAL FISCAL
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales................................................................ 100.0% 100.0% 100.0%
Cost of sales (including buying, distribution and occupancy costs)... 80.7 78.6 75.2
--------- --------- ---------
Gross margin......................................................... 19.3 21.4 24.8
Selling, general and administrative expenses......................... 22.5 23.1 21.6
Interest income, net................................................. (0.4) (0.7) (0.5)
--------- --------- ---------
Net operating expenses............................................... 22.1 22.4 21.1
--------- --------- ---------
Income (loss) before provision (benefit) for income taxes............ (2.8) (1.0) 3.7
Provision (benefit) for income taxes................................. (1.1) (0.2) 1.5
--------- --------- ---------
Net income (loss).................................................... (1.7)% (0.8)% 2.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
Sales in fiscal 1995 (53 weeks) were $266,695,000 compared to sales in
fiscal 1994 (52 weeks) of $132,997,000, an increase of $133,698,000 or 100.5%.
The dollar increase in sales in fiscal 1995 compared to fiscal 1994 was
primarily due to the acquisition of Contempo Casuals and, to a significantly
lesser extent, to the additional week of sales in fiscal 1995. These increases
were partially offset by a 4.1% decrease in comparable store sales as well as by
the net effect of the closure of nine stores and the opening of three new stores
during fiscal 1995. The Company attributes the decline in comparable store sales
to a lack of a significant fashion trend and to a shift in consumer
discretionary spending habits, especially in the junior segment, to non-apparel
items. The comparable store sales declines were most notable in certain regions,
particularly Southern California and parts of Florida, while certain other
regions experienced comparable store sales increases. The Company continues to
focus on improving comparable store sales results and believes it has added
incremental sales by broadening its merchandise offerings to include a larger
assortment of non-apparel merchandise such as gifts, accessories and cosmetics.
Additionally, the Company has implemented a frequent shopper program for each of
Wet Seal and Contempo Casuals aimed at increasing customer loyalty and has added
two top level buying positions to help the Company better anticipate and
interpret junior fashion trends on a national and regional basis.
Cost of sales, including buying, distribution and occupancy costs, was
$200,626,000 in fiscal 1995 compared to $104,547,000 in fiscal 1994, an increase
of $96,079,000 or 91.9%. As a percentage of sales, cost of sales decreased from
78.6% in fiscal 1994 to 75.2% in fiscal 1995, a decrease of 3.4%. The dollar
increase in cost of sales in fiscal 1995 compared to fiscal 1994 was due to the
increase in the number of stores as a result of the acquisition of Contempo
Casuals. Of the 3.4% decrease in cost of sales as a percentage of sales, 2.1%
related to a decrease in occupancy costs and 0.9% related to a decrease in the
cost of merchandise. The decrease in occupancy costs was associated primarily
with a decrease in depreciation resulting from the lower net book value per
store of the depreciable assets of Contempo Casuals, as compared to Wet Seal.
The decrease of 0.9% in merchandise cost was due to an increase in the initial
markup rates. Further contributing to the decrease in cost of sales as a
percentage of sales was the fact that the acquisition of Contempo Casuals took
place on July 1, 1995, and thus fiscal 1995 results do not include the results
of operations of Contempo Casuals for the first five months of the fiscal year.
The first five months of the fiscal year historically have higher cost of sales
percentages due to relatively reduced sales levels which limit the Company's
ability to leverage the fixed components of cost of sales.
Selling, general and administrative expenses were $57,531,000 in fiscal 1995
compared to $30,698,000 in fiscal 1994, an increase of $26,833,000 or 87.4%. As
a percentage of sales, selling, general and administrative expenses decreased
from 23.1% in fiscal 1994 to 21.6% in fiscal 1995, a decrease of 1.5%. The
dollar increase in selling, general and administrative expenses in fiscal 1995
compared to fiscal 1994 was primarily
12
<PAGE>
due to the acquisition of Contempo Casuals. The decrease as a percentage of
sales was related to the economies of scale the Company achieved as a result of
this acquisition. These economies of scale resulted in a 1.2% decrease in
general and administrative expenses as a percentage of sales.
Interest income, net, was $1,410,000 in fiscal 1995 compared to $882,000 in
fiscal 1994, an increase of $528,000. This increase was due primarily to an
increase in the average cash balances invested.
Income tax expense (benefit) was $4,133,000 in fiscal 1995 compared to
$(353,000) in fiscal 1994. The effective income tax rate in fiscal 1995 was
41.5% compared to a tax benefit rate of 25.8% in fiscal 1994. The tax benefit
rate in fiscal 1994 was lower than the effective tax rate in fiscal 1995 due
primarily to a valuation allowance related to the deferred tax asset which was
recorded in fiscal 1994 and was subsequently reversed in fiscal 1995.
Net income was $5,815,000 in fiscal 1995 compared to a net loss of
$1,013,000 in fiscal 1994. As a percentage of sales, net income was 2.2% in
fiscal 1995 compared to a net loss of 0.8% in fiscal 1994. The Company's return
to profitability in fiscal 1995 was directly related to the acquisition of
Contempo Casuals. With this acquisition, the Company achieved significant
economies of scale in areas such as buying, distribution and general and
administrative costs. At the same time, the acquisition enabled the Company to
reduce its average depreciation cost per store due, in part, to the favorable
acquisition price.
FISCAL 1994 COMPARED TO FISCAL 1993
Sales in fiscal 1994 were $132,997,000 compared to sales in fiscal 1993 of
$140,129,000, a decrease of $7,132,000 or 5.1%. The decrease in sales in fiscal
1994 compared to fiscal 1993 was primarily due to a 9.2% decrease in comparable
store sales and, to a lesser extent, to the closure of two stores during fiscal
1994 and six stores in fiscal 1993, partially offset by the opening of six new
stores during fiscal 1994. The Company attributes this decrease in comparable
store sales to a great extent to the shift in the spending habits of the junior
market to non-apparel items. The decrease in comparable store sales was most
evident in the first three quarters of fiscal 1994. In the fourth quarter of
fiscal 1994 comparable store sales were relatively unchanged.
Cost of sales, including buying, distribution and occupancy costs, was
$104,547,000 in fiscal 1994 compared to $113,092,000 in fiscal 1993, a decrease
of $8,545,000 or 7.6%. As a percentage of sales, cost of sales decreased from
80.7% in fiscal 1993 to 78.6% in fiscal 1994, a decrease of 2.1%. The decrease
as a percentage of sales was due to a decrease of approximately 4% in the cost
of merchandise as a percentage of sales as a result of a decrease in markdowns
as a percentage of sales as well as to higher initial markup rates in fiscal
1994 compared to fiscal 1993. These decreases in cost of sales as a percentage
of sales were partially offset by an increase of approximately 2% in occupancy
costs as a percentage of sales due to the fact that the Company's ability to
leverage these fixed expenses was significantly impaired by the decline in sales
in fiscal 1994.
Selling, general and administrative expenses were $30,698,000 in fiscal 1994
compared to $31,576,000 in fiscal 1993, a decrease of $878,000 or 2.8%. As a
percentage of sales, selling, general and administrative expenses increased from
22.5% in fiscal 1993 to 23.1% in fiscal 1994. The increase as a percentage of
sales in fiscal 1994 as compared to fiscal 1993 was due to the decrease in
comparable store sales, which significantly impaired the Company's ability to
leverage the fixed components of these expenses. This was most evident in store
payroll expense and office expense. Additionally, advertising expense increased
as a percentage of sales due to the Company's increased activity related to
in-store marketing and signage.
Interest income, net, was $882,000 in fiscal 1994 compared to $573,000 in
fiscal 1993, an increase of $309,000. This increase was due to a general
increase in market interest rates as well as, to a lesser extent, an increase in
the average cash balances invested.
Income tax benefit was $353,000 in fiscal 1994 compared to $1,588,000 in
fiscal 1993. The effective tax benefit rate in fiscal 1994 was 25.8% compared to
an effective tax benefit rate of 40.0% in fiscal 1993. The effective tax benefit
rate in fiscal 1994 was lower than the effective tax benefit rate in fiscal 1993
due primarily to a valuation allowance which was recorded in fiscal 1994 related
to the deferred tax asset.
13
<PAGE>
Net loss was $1,013,000 in fiscal 1994 compared to a net loss of $2,378,000
in fiscal 1993. As a percentage of sales, net loss was 0.8% in fiscal 1994
compared to 1.7% in fiscal 1993. The improvement in the net loss in fiscal 1994
compared to fiscal 1993, despite the decline in comparable store sales, was
primarily related to the decrease in cost of sales associated with a reduction
in markdowns as a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at the end of fiscal 1995, 1994 and 1993 was $26,051,000,
$22,473,000 and $18,874,000, respectively. Net cash provided by operating
activities in fiscal 1995, 1994 and 1993 was $25,308,000, $10,068,000 and
$3,920,000, respectively. The increase in cash provided by operating activities
in fiscal 1995 was due primarily to the increase in net earnings and
depreciation. Also contributing to the increase in cash provided by operating
activities was a decrease in inventory and increases in accounts payable and
income taxes payable, net of the effect of the Contempo Casuals acquisition. The
increase in cash provided by operating activities in fiscal 1994 was due
primarily to a decrease in the tax refund receivable and an increase in accounts
payable and accruals due to the timing of goods received.
Additions to property and equipment are the Company's most significant
investment activities. In fiscal 1995, 1994 and 1993 the Company invested
$2,585,000, $3,299,000 and $3,908,000, respectively, in property and equipment
and leasehold improvements. These expenditures related primarily to new store
openings and remodelings. Primarily as a result of the Company's expanded
operations, capital expenditures for fiscal 1996 are currently estimated to be
$11,000,000.
The Company has entered into lines of credit with Bank of America National
Trust and Savings Association ("Bank of America") in an aggregate principal
amount of $30,000,000 (the "Revolving Credit Facilities"), and a five year
amortizing term loan with Bank of America in the amount of $10,000,000 (the
"Term Loan," and together with the "Revolving Credit Facilities," the "Credit
Facilities"). Although the Revolving Credit Facilities expire on July 1, 1996,
the Company intends to renew such facilities on substantially the same terms.
The Company used the proceeds of the Term Loan to capitalize Contempo Casuals as
required in connection with the Contempo Casuals acquisition. As of the date of
this Prospectus, there were no borrowings under the Revolving Credit Facilities,
and the Company believes it was in substantial compliance with all terms and
covenants of such agreements. The Company invests its excess funds primarily in
a short-term investment grade money market fund, investment grade commercial
paper and U.S. Treasury and Agency obligations. Management believes the
Company's working capital and cash flows from operating activities, together
with the net proceeds to be received by the Company from the Offering, will be
sufficient to meet the Company's operating and capital requirements in the
foreseeable future.
SEASONALITY AND INFLATION
The Company's business is seasonal by nature with the Christmas season
(beginning the week of Thanksgiving and ending the first Saturday after
Christmas) and the back-to-school season (beginning the last week of July and
ending the first week of September) historically accounting for the largest
percentage of sales volume. In the Company's three fiscal years ended February
3, 1996, the Christmas and back-to-school seasons accounted for an average of
approximately 32% of the Company's annual sales, after adjusting for sales
increases related to new stores. The Company does not believe that inflation has
had a material effect on the results of operations during the past three years.
However, there can be no assurance that the Company's business will not be
affected by inflation in the future.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain sections of this Prospectus, including "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contain various forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Exchange Act, which represent the Company's expectations or beliefs
concerning future events. The Company cautions that these statements are further
qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including, without
limitation, the retention by the Company of suppliers for both brand name and
Company-developed merchandise, the ability of the Company to expand and to
reduce declines in comparable store sales and the sufficiency of the
14
<PAGE>
Company's working capital and cash flows from operating activities. In addition,
these statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward looking
statements, including, without limitation, a decline in demand for the
merchandise offered by the Company, the ability of the Company to locate and
obtain acceptable store sites and lease terms or renew existing leases, the
ability of the Company to obtain adequate merchandise supply, the ability of the
Company to hire and train employees, the ability of the Company to gauge the
fashion tastes of its customers and provide merchandise that satisfies customer
demand, management's ability to manage the Company's expansion, the effect of
economic conditions, the effect of severe weather or natural disasters and the
effect of competitive pressures from other retailers.
15
<PAGE>
BUSINESS
OVERVIEW
The Company is one of the largest national mall-based specialty retailers
focusing primarily on young women's apparel, and currently operates 362 retail
stores in 34 states and Puerto Rico under the "Wet Seal" and "Contempo Casuals"
names. The Company sells moderately priced, fashionable, casual apparel and
accessory items designed for women with a young, active lifestyle.
In July 1995, the Company acquired the 237-store chain of Contempo Casuals
stores, formerly the Company's major national direct competitor. The acquisition
expanded the Company's operations into regions not previously served by the
Company and reduced the percentage of total stores the Company operates in
California from more than 50% to approximately 35%. The Company believes
Contempo Casuals has a strong identity among young women and therefore the
Company will continue to operate most of such stores under the Contempo Casuals
name. At the time of acquisition, the Company substantially completed the
integration of Contempo Casuals, including the buying, merchandising, store
operations, information systems and distribution functions. As a result, the
Company achieved significant economies of scale and increased purchasing power
in the second half of fiscal 1995. The Company reported net income of $5.8
million in fiscal 1995, as compared to a net loss of $1.0 million in fiscal
1994.
According to the United States Census Bureau, the teenage population in the
United States reached approximately 25 million in 1995 and is expected to grow
to approximately 30 million by 2005, representing a projected growth rate close
to twice the rate of the overall population. Management believes that teenagers
represent both a growing part of the United States population and an increasing
source of purchasing power.
Beginning in 1992, a difficult retail apparel environment led a large number
of retailers, including a number of specialty retailers, to close stores or go
out of business. While the Company has experienced declines in comparable store
sales in each of the last three fiscal years, it has increased its gross margin
and cash flow from operations in each of these years. The Company believes it
has been able to manage its business effectively and maintain a strong balance
sheet during this difficult period as a result of the significant experience of
its management team, its careful management of inventory and its focus on
controlling operating expenses. The Company believes that as a result of its
size, national presence and strong balance sheet, it is well-positioned to take
advantage of the growing teenage market, as well as opportunities which may
arise from the expected continuing changes in the competitive environment of the
retailing industry.
BUSINESS STRATEGY
The Company's goal is to solidify its position as one of the largest
national mall-based specialty retailers focusing primarily on young women's
apparel. Principal elements of the Company's strategy to accomplish this goal
are as follows:
DESTINATION STORE FOR THE JUNIOR CUSTOMER. The Company has built a strong
reputation among its target customers as a destination store for fashionable
junior apparel and accessories. The Company offers a broad selection of brand
name and Company-developed apparel and accessories selected and designed to
appeal to the tastes of fashion conscious young women and other young-minded
customers. The Company recently has broadened its product offerings by including
an eclectic selection of gifts, accessories and cosmetics to more fully address
its customers' lifestyles.
INNOVATIVE IN-STORE ENVIRONMENT. To create a compelling shopping experience
and capitalize on its stores' high-traffic locations within enclosed shopping
malls, the Company focuses on developing dynamic and entertaining in-store
shopping environments that appeal to its target customers. The Company's stores
incorporate multi-media elements, such as video walls and sound systems,
interactive media, such as photo booths, and special events, such as in-store
celebrity appearances. These elements are complemented by striking
point-of-purchase graphics, specialized lighting and stylized mannequins,
creating a lively and energetic shopping environment. In addition, as leases are
renewed, the Company often remodels its stores to freshen and further enhance
the in-store atmosphere. Management believes that its innovative in-store
environments draw additional customers to the Company's stores and increase the
amount of time shoppers spend in the stores.
FASHIONABLE PRODUCT OFFERINGS AND COORDINATED MERCHANDISING. The Company
attempts to differentiate itself from other specialty retailers targeting the
same market by emphasizing the freshness of its
16
<PAGE>
merchandise. The Company maintains a balance of brand-name and Company-developed
apparel to address the demands of its customers. The Company believes that
Company-developed apparel, which consists of exclusive Company designs and
modified and relabelled vendor-developed designs, further differentiates it from
its competitors. Throughout the Company's stores, new products are introduced
frequently and displayed in fashionable ensembles that enhance the visual appeal
of the stores while assisting customers in the coordination of outfits. The
Company's vendor alliances enable it to respond quickly to developing trends.
Management believes that its frequent new product introductions and coordinated
merchandising, in combination with its proactive approach to customer service,
encourage customers to purchase multiple items.
DEVELOPING RELATIONSHIPS WITH CUSTOMERS. The Company is committed to
building strong relationships with its customers and continues to develop
programs to promote and strengthen these relationships. The Company's strategy
for developing these relationships includes (i) offering a fresh,
fashion-current selection of apparel and accessories that changes approximately
every six weeks; (ii) implementing frequent shopper programs that enhance
customer loyalty and encourage additional purchases by offering standard 10%
discounts on purchases, as well as periodic additional incentives; and (iii)
providing a level of friendly, attentive customer service with a staff that
understands and identifies with the target customer. The Company also reaches
out to its customers by sponsoring special events that appeal directly to their
interests and active lifestyles, such as movie tie-ins, in-line skating and
snowboarding competitions and in-school events.
DISCIPLINED MANAGEMENT OF OPERATIONS. The Company believes that its
continuing success in the dynamic young women's apparel retail environment is
due in part to its management of working capital and its limited leverage.
Management strictly controls trade payables and inventory by monitoring pricing
and markdowns in order to expedite sales of slow-moving inventory. The Company
believes these factors have contributed to its continuing ability to stock its
stores with fashion-current merchandise and manage its business effectively
through industry cycles.
INVESTMENT IN SYSTEMS. The Company is committed to continued investment in
merchandising and financial information systems and using current technology to
help execute its merchandising strategy, support growth and improve customer
service. The Company is in the process of selecting a new point-of-sale system
for its stores and expects to begin installing this system during fiscal 1996
and complete the project by the middle of fiscal 1997. The Company expects that
the introduction of the new point-of-sale system will reduce the cost of
communication and maintenance, improve customer service and allow the Company to
become more innovative in the area of in-store marketing.
GROWTH STRATEGY
The Company strives to increase its earnings by growing sales, increasing
comparable store sales and improving the profitability of its stores. Principal
elements of the Company's growth strategy include the following:
ENHANCING PERFORMANCE OF EXISTING STORES. The Company strives to increase
comparable store sales and improve the profitability of its stores by
remerchandising its stores, introducing new product categories and implementing
new marketing programs. For example, the Company has introduced frequent shopper
cards in its stores and sponsors special events designed to enhance customer
loyalty and encourage additional purchases. Additionally, the Company recently
introduced "The Girl's Room," a boutique-within-a-store that offers an eclectic
variety of lifestyle products such as gifts, accessories and cosmetics, featured
in a new and innovative style. The Company has added The Girl's Room in
approximately 60 stores and currently plans to add The Girl's Room in
approximately 100 additional stores in fiscal 1996. Management believes that The
Girl's Room broadens the Company's appeal as a destination store for young
women.
DEVELOPING NEW CONCEPTS. The Company intends to continue developing and
testing new concepts to increase revenues and improve profitability. Based on
the early success of The Girl's Room, the Company is developing a stand-alone
concept that would offer a greater variety of lifestyle merchandise, as well as
unisex apparel for young women and men. The Company intends to test this concept
in three locations in 1996. The Company believes this concept will broaden its
customer base and generate additional sales the Company may not otherwise
achieve.
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OPENING NEW STORES. As a result of the Contempo Casuals acquisition, the
Company almost tripled its store base and greatly expanded its geographic
presence. While the Company intends to focus primarily on remerchandising and
remodeling existing stores, including introducing The Girl's Room in additional
stores, the Company may open additional stores in new markets, as well as
existing markets where the Company believes there is potential for sales growth.
Management plans to open up to 10 new stores in fiscal 1996 and up to 20 new
stores in fiscal 1997. In April 1996, the Company agreed to enter into leases
for four new stores in the New York metropolitan area, including one in Herald
Square in New York City. Management expects to commence operations at these
stores during fiscal 1996. There can be no assurance as to the number of
additional new stores the Company will open in fiscal 1996 and 1997.
PURSUING STRATEGIC ACQUISITIONS. As opportunities arise, management
evaluates strategic acquisitions of retail chains or stores that would
complement its existing business. The Company is particularly interested in
other retailers (i) with attractive leases in prime locations or (ii) which have
a strong franchise in specialty retailing of casual apparel for young men and
women. The Company believes the successful acquisition and integration of the
operations of Contempo Casuals has demonstrated management's ability to assess
potential acquisition opportunities and smoothly integrate acquired chains or
stores.
DEVELOPING INTERNATIONAL PARTNERSHIPS. The Company has been approached by
certain international specialty apparel retailers regarding possible master
licensing agreements under which the Company would license its brand names in
exchange for royalty payments. The Company believes that such arrangements may
provide it with additional growth opportunities without requiring the commitment
of substantial capital or management resources. There can be no assurance that
the Company will enter into any such arrangements.
STORE LOCATIONS
The Company operates 362 stores in 34 states and Puerto Rico. The following
map sets forth the number of stores the Company operates in each state:
[MAP]
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PRODUCTS AND MERCHANDISING
Both Wet Seal and Contempo Casuals stores target the same fashion-conscious
junior customer. The Company merchandises both stores similarly, except in cases
where both stores are located in the same mall. In these instances, the Company
differentiates up to 50% of the merchandise mix in the stores. The Company
offers a balance of moderately-priced, fashionable brand name and
Company-developed apparel and accessories that appeal to women with young,
active lifestyles. The Company believes that Company-developed apparel further
differentiates it from its competitors. The Company frequently updates its
product offerings, which include sportswear, dresses, lingerie, outerwear,
shoes, cosmetics and accessories, to provide a regular flow of fresh, new
fashionable merchandise. The Company also remerchandises its stores
approximately every six weeks to reflect the changing tastes of the Company's
target customers. Additionally, management carefully monitors pricing and
markdowns to expedite sales of slow-moving inventory, facilitate the
introduction of new merchandise and maintain an updated fashion image.
Generally, the Company's stores display merchandise within a current fashion
statement, by color and trend groupings. Rather than displaying garments
together by type (blouses with blouses, for example), the Company combines items
of apparel and accessories which the customer might buy as an ensemble. Store
displays are designed to enable customers to create ensembles within a current
fashion statement or trend group. Management believes that the trend grouping
concept strengthens the fashion image of the merchandise offered in the stores
and enables the customer to locate combinations of blouses, skirts, pants and
accessories in a manner which enhances the Company's opportunity to make
multiple unit sales. The general layout of merchandise in the stores is planned
by the Company's management, but may be varied and adapted by each store's
management. The Company makes use of in-store image posters to help focus
customers on particular fashion themes.
Based upon the success of the Company's accessory offerings, and consistent
with its strategy of differentiating its merchandise mix from that of its
competitors, the Company recently introduced "The Girl's Room," a
boutique-within-a-store that offers an expanded assortment of gifts, accessories
and cosmetics selected to appeal to the tastes and sensibilities of its
customers. By giving customers another reason to visit the Company's stores,
management believes The Girl's Room has broadened the Company's appeal as a
destination store for young women. Currently in approximately 60 stores, the
Company intends to introduce The Girl's Room in approximately 100 additional
stores during fiscal 1996.
DESIGN, BUYING AND PRODUCT DEVELOPMENT
The Company's experienced design and buying teams are responsible for
identifying evolving fashion trends and then developing themes to guide the
Company's merchandising strategy. These teams monitor emerging fashion trends by
attending domestic and international fashion shows, engaging the services of
international fashion consultants, following industry publications and
conducting regular market research, including monitoring cutting-edge,
alternative stores, visiting Company stores to interact with customers and
employees and visiting competitors' stores. Additionally, the Company holds
"open to buy" days once a week to allow small vendors to meet with buyers
without appointments. Management believes that these open sessions provide
buyers with the opportunity to purchase fresh and innovative products that help
to further differentiate the Company's merchandise mix.
The Company's commitment to Company-developed apparel is an important
element in differentiating its merchandise from that of its competitors. After
selecting a fashion theme to promote, the design and buying teams work closely
with vendors to modify colors, materials and designs and create an image
consistent with the theme for the Company's product offerings. Additionally, the
Company has increased its focus on developing exclusive designs to reinforce the
fashion statements of its merchandise offerings.
SOURCING AND VENDOR RELATIONSHIPS
The Company purchases its merchandise from numerous domestic vendors and an
increasing number of foreign vendors. Although in fiscal 1995 no single vendor
accounted for more than 10% of the Company's merchandise, management believes
the Company is the largest customer of many of its smaller vendors. Management
believes the Company's importance to these vendors allows it to provide
significant input into their design, manufacturing and distribution processes,
and has enabled the Company to negotiate favorable
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terms with such vendors. Quality control is monitored carefully at the
distribution points of its largest vendors and manufacturers, and all
merchandise is inspected upon arrival at the Company's Los Angeles, California
distribution center. The Company does not have any long term or exclusive
contracts with any particular manufacturer or supplier for either brand name or
Company-developed apparel.
ALLOCATION AND DISTRIBUTION
The Company's merchandising effort primarily focuses on maintaining a
regular flow of fresh, fashionable merchandise into its stores. Successful
execution depends in large part on the Company's integrated planning and
allocation team. By working closely with District and Regional Directors and
merchandise buyers, this team manages inventory levels and coordinates the
allocation of merchandise to each of the Company's stores based on sales volume,
climate and other factors that may influence individual stores' merchandise mix.
In July 1995, the Company consolidated its distribution function into
Contempo Casuals' Los Angeles, California distribution facility. All merchandise
is received from vendors at this facility, where items are inspected for quality
and prepared for shipping to the Company's stores. The Company ships merchandise
to stores within a 100-mile radius of the distribution center by its
Company-owned trucks. The remainder of the Company's stores are shipped
merchandise by common carrier. Consistent with the Company's goal of maintaining
the freshness of its product offerings, the Company ships new merchandise to
each store on a daily basis.
MARKETING, ADVERTISING AND PROMOTION
The Company believes that the highly-visible locations of its stores within
regional shopping malls, broad selection of fashionable merchandise and dynamic,
entertaining in-store environments have contributed significantly to the
Company's reputation as a destination store addressing the lifestyle of
fashion-conscious young women. Consequently, the Company has historically relied
more heavily on these factors and "word-of-mouth" advertising than more
traditional forms of advertising such as print, radio and television.
The Company utilizes a variety of advertising and promotional programs that
allow it to gain exposure in a cost-effective manner. By introducing frequent
shopper cards in its stores, the Company has developed a marketing database that
helps to track customers. The cards, which are sold for $20 each, entitle
customers to a standard 10% discount on purchases made within a one year period.
As part of these programs, sales representatives call cardholders personally to
notify them of special in-store promotions, such as preferred customer sales
during which cardholders receive additional incentives. Management believes
these promotions foster customer loyalty and encourage frequent visits and
multiple item purchases. The Company also recently began sponsoring special
events such as in-line skating and snowboarding competitions that focus on the
interests and active lifestyles of its target customers. Further, the Company
recently began utilizing its Company-owned trucks as "rolling billboards" in
California, painting them to promote The Girl's Room as well as certain of its
Company-developed labels.
The Company designs its promotions to focus on and identify with its target
customers. The Company's destination store reputation among young women has been
recognized by other companies that market to the same demographic group. For
example, the Company recently participated in a promotional tie-in with the
movie "Clueless" by featuring posters in its stores and offering certain
movie-related items. The Company is planning similar promotions in the near
future.
STORE OPERATIONS
The Company's stores are divided into six geographic regions. Each region is
managed by a Regional Director who reports to the Company's Vice President of
Store Operations. Each region is further divided into districts consisting of
between 10 and 16 stores and managed by a District Director. The Company
delegates substantial authority to the regional, district and store level
employees, while taking advantage of economies of scale by centralizing
functions such as finance, data processing, merchandise purchasing and
allocation, human resources and real estate at the corporate level.
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The Company encourages communication between and among its Regional and
District Directors and senior management. Each of the Company's 30 District
Directors provides weekly reports to senior management concerning overall
business conditions and specific aspects of their stores' operations. These
reports are used to identify competitive trends and store level concerns in a
timely manner. Store performance is also evaluated by senior management through
the use of a "secret shopper" service that shops each store twice a month.
Stores are typically staffed with one full-time manager, one or two
full-time co-managers, one full-time customer service leader and nine to sixteen
sales associates and cashiers, most of whom are part-time. During peak seasons,
stores may increase staffing levels to accommodate the additional in-store
traffic. The Company seeks to hire store-level employees who are energetic,
fashionable and friendly and who can identify with its targeted customers. The
Company's policy is to promote store managers from within while also hiring from
outside. Highly-regarded store managers are often given opportunities to move to
higher-volume stores. The Company sets weekly sales goals for each store and
devises incentives to reward stores that meet or exceed their sales targets. In
addition, from time to time the Company runs sales contests to encourage its
store level employees to maximize sales volume.
Most of the Company's stores are, and the Company expects that most of its
new stores will be, located in regional, high-traffic shopping malls which
contain at least one "anchor" department store. The Company places great
emphasis on its location within a mall and attempts to locate stores in the
higher-traffic areas of a mall and to obtain the greatest amount of frontage
possible. The Company's average store size is approximately 4,200 square feet.
Store hours are determined by the mall in which the store is located.
INFORMATION AND CONTROL SYSTEMS
The Company's information systems hardware, and various software
applications, were upgraded prior to the acquisition of Contempo Casuals in
order to accommodate the increased data processing needs resulting from the
acquisition. The Company believes its information systems are adequate to
support its current needs and currently is considering its information systems
requirements to support longer-term growth.
Although the Wet Seal and Contempo Casuals stores currently operate on two
different point-of-sale systems, the Company installed necessary interfaces to
allow for the integration of the point-of-sale data with the main system. The
Company is in the process of selecting a new point-of-sale system for both the
Wet Seal and Contempo Casuals stores and expects to begin installing this system
in the stores during fiscal 1996 and complete the project by the middle of
fiscal 1997. The Company expects that the introduction of a new point-of-sale
system will enable it to decrease communication and maintenance costs, improve
customer service and become more innovative in the area of in-store marketing.
TRADEMARKS
The Company's primary trademarks and service marks are "WET SEAL," "CONTEMPO
CASUALS" and "NEXT," which are registered in the U.S. Trademark Office. The
Company also uses and has registered or has a pending registration on a number
of marks, including "ACCOMPLICE," "BLUE ASPHALT," "CEMENT," "URBAN VIBE" and
"EVOLUTION NOT REVOLUTION." In general, the registrations for these trademarks
and service marks are renewable indefinitely as long as the Company continues to
use the marks as required by applicable trademark law. The Company is the owner
of an allowed and currently pending service mark application for the mark "SEAL
PUPS." The Company is not aware of any adverse claim or other infringement
relating to its trademarks or service marks.
COMPETITION
The young women's retail apparel industry is highly competitive, with
fashion, quality, price, location, in-store environment and service being the
principal competitive factors. The Company competes with specialty apparel
retailers, department stores and certain other apparel retailers, including The
GAP, and on a regional basis, with such retailers as Charlotte Russe, Miller's
Outpost and Gadzooks. Many competitors
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are large national chains which have substantially greater financial, marketing
and other resources than the Company. While the Company believes it competes
effectively for favorable site locations and lease terms, competition for prime
locations within a mall is intense.
EMPLOYEES
As of February 3, 1996, the Company had 4,630 employees, consisting of 1,525
full-time employees and 3,105 part-time employees. Full-time personnel consisted
of 877 salaried and 648 hourly employees. All part-time personnel are hourly
employees. Of the total employees, 4,343 are sales personnel and 287 are
administrative and distribution center personnel. Personnel at all levels of
store operations are provided with cash incentives based upon various individual
store sales targets.
All of the Company's employees are non-union and, in management's opinion,
are paid competitively with current standards in the industry. The Company
considers its relationship with its employees to be satisfactory.
PROPERTIES
The Company's corporate headquarters are located at 64 Fairbanks, Irvine,
California, consisting of 85,740 square feet of leased office and storage space
(including 37,800 square feet of storage mezzanine space). This lease expires on
June 30, 1997. The Company has two consecutive five-year renewal options which
are subject to rent increases up to the fair market rental at the time of
renewal. The Company's distribution facility is located in Los Angeles,
California and consists of 99,847 square feet (including distribution mezzanine
space). This lease expires on July 31, 2002. This lease was acquired with the
acquisition of Contempo Casuals. The Company plans to sublease this facility and
lease new distribution space so that the office and distribution facilities are
in closer proximity to one another.
The Company leases all of its stores. Lease terms for the Company's stores
are typically 10 to 12 years and generally do not contain renewal options. The
leases generally provide for a fixed minimum rental and a rental based on a
percent of sales once a minimum sales level has been reached. As a lease
expires, the Company generally renews such lease at current market terms.
However, such renewal is based upon an analysis of the individual store's
profitability and sales potential.
Although the Company operates all of the Contempo Casuals stores, landlords
for 37 leases for such stores have not consented to the store lease assignments
effected in connection with the Contempo Casuals acquisition. The Company
believes that the absence of such consents will not have a material adverse
effect on the Company's financial condition or results of operations.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Management
believes that, in the event of a settlement or an adverse judgment of any
pending litigation, the Company is adequately covered by insurance. The Company
is not engaged in any legal proceedings which are expected, individually or in
the aggregate, to have a material adverse effect on the Company.
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MANAGEMENT
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------- --- -------------------------------------------------------
<S> <C> <C>
Irving Teitelbaum (1) 57 Chairman of the Board and Director
Kathy Bronstein 44 Vice Chairman and Chief Executive Officer and Director
Edmond S. Thomas 42 President and Chief Operating Officer and Director
Stephen Gross (1) 50 Secretary and Director
Barbara Bachman 46 Vice President of Store Operations
Cecilia Gasgonia 35 Vice President of Merchandise Planning and Distribution
Sharon Hughes 36 Vice President of Merchandising
Ann Cadier Kim 38 Vice President of Finance and Chief Financial Officer
Ron Shaban 51 Vice President of Management Information Systems
Jean Heller Wollam 38 Vice President of Merchandising
George H. Benter, Jr. 54 Director
Walter F. Loeb 71 Director
Wilfred Posluns 64 Director
Gerald Randolph 77 Director
Alan Siegel 61 Director
</TABLE>
------------------------
(1) Mr. Teitelbaum and Mr. Gross are brothers-in-law.
IRVING TEITELBAUM has been Chairman of the Board and a director of the
Company since June 1984. Mr. Teitelbaum is the co-founding President (in 1967)
and current Chairman and Chief Executive Officer of Suzy Shier Limited, a
Canadian public company listed on the Toronto and Montreal Stock Exchanges,
retailing women's apparel and lingerie in over 400 stores in Canada and the
United Kingdom. Mr. Teitelbaum also serves as President of First Canada
Management Corp., a management consulting firm.
KATHY BRONSTEIN was appointed the Company's Vice Chairman of the Board in
March 1994. Since March 1992, she has also served as the Company's Chief
Executive Officer. From March 1992 to March 1994 she was the Company's
President. From January 1985 through March 1992, Ms. Bronstein was Executive
Vice President and General Merchandise Manager and a director of the Company.
Ms. Bronstein's primary responsibilities include formulating and directing the
Company's expansion and overall marketing and merchandising strategies.
EDMOND S. THOMAS was appointed the Company's President in March 1994. Since
June 1992, he has also served as the Company's Chief Operating Officer. His
responsibilities include overseeing store operations, real estate, finance,
management information systems, store construction and the central distribution
center. Mr. Thomas became a director of the Company in August 1992. Prior to
joining the Company, from May 1991 through June 1992, Mr. Thomas was President
and Chief Operating Officer and a director of Domain, Inc., a Boston-based
upscale home furnishings retailer. From November 1988 to
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May 1991, Mr. Thomas was President and Chief Financial Officer of Foxmoor
Specialty Stores Corporation, a retail women's apparel chain ("Foxmoor"). From
May 1985 to November 1988, Mr. Thomas held various positions with Foxmoor,
including Corporate Controller and Executive Vice President, during which time
his responsibilities included finance, management information systems,
distribution, real estate, store operations and store construction.
STEPHEN GROSS has been the Secretary and a director of the Company since
June 1984. Mr. Gross co-founded Suzy Shier Limited. Since 1967, he has been a
director and an officer of Suzy Shier Limited, having served as President,
Assistant Secretary and Treasurer since 1976. He has also been the General
Merchandise Manager of Suzy Shier Limited since 1974. Mr. Gross also serves as
President of Irwel Management Services Inc., a management consulting firm
established in 1975.
BARBARA BACHMAN has been the Company's Vice President of Store Operations
since December 1994. From 1982 to 1994, Ms. Bachman served as Vice President of
Store Operations with Contempo Casuals. She previously held various other
positions with Contempo Casuals, including Regional Director of Stores from 1979
to 1982, District Manager from 1977 to 1979, and Store Manager from 1976 to
1977.
CECILIA GASGONIA has been the Director of Merchandise Planning since joining
the Company in February 1994. She was appointed Vice President of Merchandise
Planning and Distribution in June 1995. From 1987 to January 1994, Ms. Gasgonia
was Director of Merchandise Planning with Clothestime, a junior retail chain.
SHARON HUGHES has been employed by the Company since May 1990. Since March
1994, she has served as the Vice President of Merchandising. From May 1990 to
March 1994 she served as a Merchandise Manager. From 1983 to April 1990, Ms.
Hughes was employed by Saturday's, a chain of clothing stores, in various
capacities, the most recent of which was General Merchandise Manager.
ANN CADIER KIM has been employed by the Company since January 1986. In March
1994, she was appointed Vice President of Finance. Since December 1993 she has
served as the Company's Chief Financial Officer. From January 1986 to November
1993, Ms. Cadier Kim was the Company's Controller. From September 1982 to August
1985, she was employed by Touche Ross & Co. as an audit senior. Ms. Cadier Kim
is a certified public accountant.
RON SHABAN has been employed by the Company since September 1993 as Director
of Management Information Systems. In June 1995, he was appointed Vice President
of Management Information Systems. From September 1991 to September 1993, Mr.
Shaban was Director of Management Information Systems with Rag Shops, Inc. From
February 1988 to September 1991, he was Director of Management Information
Systems with G&G Shops, Inc., a division of Petrie Stores.
JEAN HELLER WOLLAM has been the Company's Vice President of Merchandising
since March 1992. From March 1988 to March 1992, Ms. Wollam held various other
positions with the Company, including Associate General Merchandising Manager
responsible directly for all private label merchandising from January 1991 to
March 1992, Divisional Merchandise Manager responsible for all sportswear from
November 1989 to December 1990, and Tops Buyer from March 1988 to November 1989.
From September 1987 to February 1988, Ms. Wollam was a Merchandise Manager with
MGA/Guess Stores and from January 1985 to August 1987, she was a buyer with
Contempo Casuals.
GEORGE H. BENTER, JR. has been a director of the Company since 1990. Since
May 1992, Mr. Benter has been President, Chief Operating Officer and a director
of City National Bank. From 1965 until April 1992, Mr. Benter worked in various
capacities with Security Pacific Corporation, culminating in the position of
Vice Chairman. Prior to that time he held various positions with Security
Pacific National Bank. He is also a director of Whittaker Corporation.
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WALTER F. LOEB has been a director of the Company since May 1993. He is
President of Loeb Associates Inc., a New York-based retail consultancy company
that has served a variety of domestic and international companies since its
founding in February 1990. Mr. Loeb is also the publisher of "Loeb Retail
Letter," a monthly analysis of the retail industry. He currently is a director
of Color Tile, Inc., Federal Realty Investment Trust, Gymboree Corporation and
InterTan, Inc.
WILFRED POSLUNS has been a director of the Company since 1990. He is
Managing Director of Cedarpoint Investments, Inc., a Toronto-based venture
capital company. Mr. Posluns was the Chairman of the Board of Directors and
Chief Executive Officer of Dylex Limited from July 1988 to August 1995 and
President from 1976 through 1990. He was a member of the Board of Directors of
Dylex Limited from 1966 to August 1995. On January 11, 1995, Dylex Limited filed
for court protection under the Companies Creditors Arrangement Act and emerged
from protection under such Act in 1995. Mr. Posluns is a director of The John
Forsyth Co. Inc. and of Israel Discount Bank of Canada. From 1973 until March
1992, Mr. Posluns was the Chairman of the Board of Strathearn House Group
Limited, a company of which, pursuant to a voting trust agreement, he had joint
control of 48% of the voting shares. In February 1992, a receiver was appointed
for Strathearn House Group Limited and voluntary proceedings in reorganization
were initiated under Canadian laws.
GERALD RANDOLPH has been a director of the Company since July 1989. Mr.
Randolph is a chartered accountant in Canada. He has been engaged in an outside
professional capacity by Suzy Shier Limited from its inception in 1967, having
served as its independent auditor, until July 1989 when he was appointed Chief
Financial Officer and a director of Suzy Shier Limited.
ALAN SIEGEL has been a director of the Company since 1990. He has been a
partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. since
August 1995. From 1987 to July 1995 he was a partner in the law firm of Baker &
McKenzie. He is also a director of Thor Industries, Inc. and Ermenegildo Zegna
Corporation.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Kathy Bronstein,
Vice Chairman and Chief Executive Officer, and Edmond S. Thomas, President and
Chief Operating Officer. Each agreement has a current term which extends to
January 30, 2001. The agreement automatically extends for an additional year on
the first day of each fiscal year for up to five years. These automatic
extensions may be terminated by either party at any time upon prior written
notice. Ms. Bronstein and Mr. Thomas have agreed not to compete with the Company
during the term of their employment and for a period of two years thereafter.
The Company has obtained a "key man" life insurance policy on Ms. Bronstein in
the amount of $5 million.
In the event that following a "Change of Control" (as defined in the
employment agreements) and either a termination of their employment other than
"for cause" or a substantial reduction in the scope of their duties, the Company
would be obligated to make payments to Ms. Bronstein and Mr. Thomas in an amount
equal to three times their respective annual salaries, including bonuses, plus
an amount equal to any federal excise tax obligations arising from such payments
and any income tax obligations arising from reimbursement of any such excise
taxes.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 20,000,000
shares of Class A Common Stock, (ii) 10,000,000 shares of Class B Common Stock
and (iii) 2,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock").
VOTING RIGHTS
The voting powers, preferences and relative rights of Class A Common Stock
and Class B Common Stock are identical in all respects, except that the holders
of Class A Common Stock are entitled to one vote per share and holders of Class
B Common Stock are entitled to two votes per share and Class B Common Stock has
certain restrictions on ownership and transfer described under "-- Other
Provisions". Except as described below, holders of Class A Common Stock and
Class B Common Stock vote together on all matters presented to the stockholders
for their vote or approval, including the election of directors. The
stockholders are not entitled to vote cumulatively for the election of
directors.
Under the Company's Restated Certificate and the General Corporation Law of
the State of Delaware (the "Delaware Law"), the holders of Class A Common Stock
and Class B Common Stock are entitled to vote as separate classes on any
amendment to the Restated Certificate that would increase or decrease the par
value of the shares of either class, or alter or change the powers, preferences
or special rights of the shares of either class so as to affect such class
adversely.
DIVIDENDS
Each share of Class A Common Stock and Class B Common Stock is entitled to
receive dividends if, as and when declared by the Board of Directors of the
Company. Class A Common Stock and Class B Common Stock share equally, on a
share-for-share basis, in any dividends declared by the Board of Directors.
Under the Delaware Law, the Company may declare and pay dividends out of
surplus, or if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared or the preceding year. No dividends may be
declared, however, if the capital of the Company had been diminished by
depreciation, losses or otherwise to an amount less than the aggregate amount of
capital represented by any issued and outstanding stock having a preference on
distribution.
CONVERSION RIGHTS
Class A Common Stock has no conversion rights. Each share of Class B Common
Stock, however, is convertible at any time at the option of the holder into one
share of Class A Common Stock.
The Company's Restated Certificate provides that any holder of shares of
Class B Common Stock desiring to transfer such shares to a person other than a
Permitted Transferee (as defined below) must present such shares to the Company
for mandatory conversion into an equal number of shares of Class A Common Stock
upon such transfer. Thereafter, such shares of Class A Common Stock may be
freely transferred to persons other than Permitted Transferees, subject to
applicable securities laws.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CLASS B COMMON STOCK
The Company's Restated Certificate provides that Class B Common Stock is
subject to certain restrictions on its ownership and transfer which do not apply
to Class A Common Stock.
Shares of Class B Common Stock may not be transferred by sale, gift, bequest
or otherwise to any person other than a Permitted Transferee (as defined below)
without first being converted to Class A Common Stock.
If at any time a holder of shares of Class B Common Stock is a corporation,
trust, partnership, limited partnership or similar entity (hereinafter referred
to as a "Class B Stockholder Entity") then, except as provided in each of the
following two paragraphs, no ownership interest in such Class B Stockholder
Entity may be issued or transferred if following such issuance or transfer such
Class B Stockholder Entity is not directly or indirectly wholly owned by one or
more Permitted Transferees. If any transfer is made contrary to this limitation,
then Class B Common Stock held by such Class B Stockholder Entity shall
automatically be converted into Class A Common Stock.
If any person other than a Permitted Transferee makes an offer to acquire or
acquires a 100% ownership interest in a Class B Stockholder Entity, whether by
merger, consolidation, purchase of assets or stock or otherwise, then either (i)
such person must make an Equal Terms Offer (as defined in the Restated
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<PAGE>
Certificate) to all holders of Class A Common Stock on or prior to the
consummation of such acquisition or (ii) all shares of Class B Common Stock held
by such Class B Stockholder Entity shall automatically be converted into shares
of Class A Common Stock upon the consummation of such acquisition; PROVIDED,
HOWEVER, that after five Class B Stockholder Entities have been acquired
pursuant to this paragraph by persons other than Permitted Transferees, any
further acquisition of any Class B Stockholder Entity by a person other than a
Permitted Transferee shall result in the automatic conversion of all shares of
Class B Common Stock held by such Class B Stockholder Entity into Class A Common
Stock.
Notwithstanding the foregoing, the restrictions on transfers and changes in
beneficial ownership of Class B Common Stock contained in the previous two
paragraphs do not apply to any changes in the beneficial ownership and/or
control of Suzy Shier. However, this exception does not apply at any time
following any transfer of assets (other than shares of capital stock of the
Company) from Suzy Shier by sale, conveyance, exchange, dividend, distribution
or otherwise, other than transfers of assets in the ordinary course of business
consistent with past practice, following which Suzy Shier no longer operates the
majority of the Canadian business operations of Suzy Shier operated prior to
such transfer.
"Permitted Transferee" means (i) an original holder of Class B Common Stock
(an "Original Holder"), (ii) an immediate family member of an Original Holder
that is a natural person, or (iii) a corporation, trust, partnership, limited
partnership, association or similar entity which is directly or indirectly
wholly-owned by an Original Holder or his family members.
OTHER PROVISIONS
Holders of Class A Common Stock and Class B Common Stock have no preemptive
rights to subscribe to any additional securities which the Company may issue and
there are no redemption or sinking fund provisions applicable to either class.
All outstanding shares are, and all shares to be outstanding upon completion of
the Offering will be, validly issued, fully-paid and non-assessable. In the
event of the liquidation, dissolution or winding up of the Company, holders of
the shares of Class A Common Stock and Class B Common Stock are entitled to
share equally, on a share-for-share basis, in the assets of the Company
available for distribution to stockholders after satisfaction of any preferred
stock liquidation preference.
PREFERRED STOCK
The Company currently has no shares of Preferred Stock outstanding.
Preferred Stock may be issued from time to time in one or more series and the
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, sinking funds and any
other rights, preferences, privileges and restrictions applicable to each such
series of Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a third party to gain control of the Company.
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Section 203 of the Delaware Law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock.
The Company has included in its Restated Certificate provisions to (i)
eliminate the personal liability of its directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the Delaware
Law and (ii) indemnify its directors and officers to the fullest extent
permitted by Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
27
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of May 3, 1996: (i) the beneficial
ownership of the outstanding shares of Common Stock held by (A) the Selling
Stockholders, (B) all other persons known to the Company to own beneficially 5%
or more of the outstanding shares of Common Stock and (C) Kathy Bronstein, the
Vice Chairman and Chief Executive Officer, and Edmond S. Thomas, the President
and Chief Operating Officer; (ii) the number of shares being sold by the Selling
Stockholders in the Offering (assuming all shares of Class B Common Stock
offered by the Selling Stockholders are converted into Class A Common Stock and
sold); and (iii) the percentage of total voting power represented by Common
Stock held by each such stockholder before and after the Offering. Pursuant to
the rules of the Commission, in calculating percentage ownership, each person is
deemed to beneficially own his shares subject to options exercisable within 60
days after the date of this Prospectus, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
PRIOR TO THE OFFERING AFTER THE OFFERING
--------------------------------------- -----------------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES SHARES OF SHARES OF
CLASS A CLASS B % OF TOTAL OF CLASS A CLASS A CLASS B
COMMON COMMON VOTING COMMON STOCK COMMON COMMON
STOCK OWNED STOCK OWNED POWER BEING OFFERED STOCK OWNED STOCK OWNED(1)
------------ ------------ ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
2927977 Canada Inc. (GTHI Sub) -- 1,962,346 21.4% 789,273 -- 1,173,073
(2)................................
Suzy Shier Inc. (2)................. -- 1,500,000 16.4 1,167,500 -- 332,500
Los Angeles Express Fashions, Inc. (2)... -- 1,500,000 16.4 -- -- 1,500,000
Gross-Teitelbaum Holdings Inc. -- 378,227 4.1 378,227 -- --
(2)................................
Kathy Bronstein (3)................. 130,000 467,092 5.8 -- 130,000 467,092
Edmond S. Thomas (4)................ 121,830 -- * -- 121,830 --
Merrill Lynch & Co., Inc. (5)....... 916,700 -- 5.0 -- 916,700 --
Craig Drill Capital, L.P. (6)....... 1,563,800 -- 8.5 -- 1,563,800 --
Charles M. Royce (7)................ 427,870 -- 2.3 -- 427,870 --
Pioneering Management Corp. (8)..... 399,700 -- 2.2 -- 399,700 --
<CAPTION>
% OF TOTAL
VOTING
POWER
-----------
<S> <C>
2927977 Canada Inc. (GTHI Sub) 14.0%
(2)................................
Suzy Shier Inc. (2)................. 4.0
Los Angeles Express Fashions, Inc. ( 17.9
Gross-Teitelbaum Holdings Inc. 0.0
(2)................................
Kathy Bronstein (3)................. 6.3
Edmond S. Thomas (4)................ *
Merrill Lynch & Co., Inc. (5)....... 5.5
Craig Drill Capital, L.P. (6)....... 9.3
Charles M. Royce (7)................ 2.6
Pioneering Management Corp. (8)..... 2.4
</TABLE>
------------------------
* Less than 1%.
(1) If the Underwriters' overallotment option is exercised in full, GTHI Sub,
Suzy Shier, and Gross-Teitelbaum Holdings Inc. will beneficially own
1,015,573 shares, 175,000 shares and 0 shares of Class B Common Stock,
respectively.
(2) The address of each such Trust Stockholder is 1604 St. Regis Blvd., Dorval,
Quebec, Canada H9P 1H6. The Trust Stockholders are directly or indirectly
controlled by Irving Teitelbaum, Chairman of the Board, and Stephen Gross,
Secretary and a director of the Company. Upon consummation of the Offering,
shares representing approximately 35.9% (32.5% if the Underwriters'
overallotment option is exercised in full) of the total voting power will be
owned by the Trust Stockholders. The Trust Stockholders are parties to a
voting trust agreement which will terminate upon consummation of the
Offering.
(3) Ms. Bronstein has sole voting and dispositive power with respect to all of
the stated holdings of Class A and Class B Common Stock. The number of
shares of Class A Common Stock includes options to purchase 120,000 shares
of Class A Common Stock, all of which are currently exercisable. 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. If
the Underwriters exercise their overallotment option in full, Ms. Bronstein
will sell 80,000 shares of Class A Common Stock.
(4) Mr. Thomas has sole voting and dispositive power with respect to all of the
stated holdings of Class A Common Stock. The number of shares of Class A
Common Stock includes options to purchase 120,000 shares of Class A Common
Stock, all of which are currently exercisable. Mr. Thomas also holds options
to purchase an additional 120,000 shares of Class A Common Stock which
become exercisable over the next three years. If the Underwriters exercise
their overallotment option in full, Mr. Thomas will sell 70,000 shares of
Class A Common Stock.
28
<PAGE>
(5) The stockholder's address is c/o Merrill Lynch Group, Inc., World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281. As reported
in a Schedule 13G dated April 10, 1996, Merrill Lynch & Co., Inc., a
Delaware corporation ("ML&Co"), in its capacity as parent holding company of
Merrill Lynch Group, Inc., a Delaware corporation ("ML Group"), which is the
parent holding company of Princeton Services, Inc., a Delaware corporation
("PSI"), may be deemed the beneficial owner of an aggregate of 916,700
shares of Class A Common Stock of the Company. PSI is the general partner of
Merrill Lynch Asset Management, L.P. (d/b/a) Merrill Lynch Asset Management,
a Delaware limited partnership ("MLAM") and Fund Asset Management, L.P.
(d/b/a) Fund Asset Management, a Delaware limited partnership ("FAM"). MLAM
and FAM are registered investment advisers which may be deemed the
beneficial owners of 266,800 shares of Class A Common Stock and 649,900
shares of the Class A Common Stock, respectively. These numbers consist of
the shares held for two discretionary account clients of MLAM and FAM:
Merrill Lynch Global Allocation Fund, Inc. and Merrill Lynch Special Value
Fund, Inc. (the "Funds"), respectively. ML&Co, ML Group, PSI, FAM, MLAM and
the Funds expressly disclaim that they are, in fact, the beneficial owners
of any securities of the Company.
(6) The stockholder's address is Park Avenue Plaza, New York, New York 10055. As
reported in a Schedule 13D dated February 12, 1996, Craig Drill Capital,
L.P. has sole voting and dispositive power with respect to 1,563,800 shares
of the Class A Common Stock of the Company. Mr. Craig A. Drill is sole
general partner of Craig Drill Capital, L.P.
(7) The stockholder's address is 1414 Avenue of the Americas, New York, New York
10019. As reported in a Schedule 13G dated February 13, 1996, all of the
securities are beneficially owned by Charles M. Royce. Mr. Royce may be
deemed to be a controlling person of Quest Advisory Corp. ("Quest") and
Quest Management Company ("QMC"), and as such may be deemed to own
beneficially the shares of Class A Common Stock beneficially owned by Quest
and QMC. Quest has sole voting and dispositive authority with respect to
358,670 shares. QMC has sole voting and dispositive authority with respect
to 69,200 shares. Mr. Royce does not own any shares of Class A Common Stock
outside of Quest and QMC, and expressly disclaims that he is, in fact, the
beneficial owner of the shares held by Quest and QMC.
(8) The stockholder's address is 60 State Street, Boston, Massachusetts 02109.
As reported in a Schedule 13G dated January 26, 1996, Pioneering Management
Corp. has sole voting power with respect to 399,700 shares of the Class A
Common Stock of the Company and has shared dispositive power with respect to
399,700 shares of the Class A Common Stock.
29
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Underwriters named below have severally agreed to purchase from the Company
and the Selling Stockholders the aggregate number of shares of Class A Common
Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Schroder Wertheim & Co. Incorporated...........................................................
Montgomery Securities..........................................................................
-----------------
Total...................................................................................... 3,100,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated to purchase all 3,100,000 shares of Class A Common Stock offered
hereby (other than the shares covered by the overallotment option), if any are
purchased. Schroder Wertheim & Co. Incorporated and Montgomery Securities, as
representatives of the several Underwriters (the "Representatives"), have
advised the Company and the Selling Stockholders that the Underwriters propose
to offer the shares to the public at the public offering price set forth on the
cover page of this Prospectus; that the Underwriters propose to allow a
concession not in excess of $ per share to certain dealers, including the
Underwriters; that the Underwriters and such dealers may allow a discount of not
in excess of $ per share to other dealers; and that the public offering price
and the concession and discount to dealers may be changed by the Representatives
after the commencement of the Offering.
Certain stockholders have granted to the Underwriters an option, expiring at
the close of business on the 30th day after the date of the Underwriting
Agreement, to purchase up to an additional 465,000 shares of Class A Common
Stock, at the public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option, in whole or in part, only to cover overallotments, if any,
in the sale of shares of Class A Common Stock in the Offering. To the extent
that the Underwriters exercise this option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares
proportionate to such Underwriter's initial commitment.
The Company, certain stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company and its directors, officers, certain 5% stockholders and certain
other stockholders have agreed not to sell or otherwise dispose of any shares of
Class A Common Stock or Class B Common Stock for a period of (i) 180 days with
respect to the Company and the Trust Stockholders; or (ii) 120 days with respect
to directors and officers of the Company who are not affiliated with the Trust
Stockholders, in each case after the date of this Prospectus, without the prior
written consent of the Representatives.
In connection with the Offering, certain Underwriters and selling group
members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Class A Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two business day period before commencement of offers of
sales of shares of the Class A Common Stock offered hereby. Passive market
making transactions must comply with certain volume and price limitations and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security, and if all
independent bids are lowered below the passive market maker's bid, then such bid
must be lowered when certain purchase limits are exceeded.
30
<PAGE>
EXPERTS
The financial statements included and incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
February 3, 1996 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which report is also included and
incorporated herein by reference, and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., New
York, New York. Alan Siegel, a director of the Company, is a member of the firm
of Akin, Gump, Strauss, Hauer & Feld, L.L.P. and is the holder of options to
purchase 10,000 shares of Class A Common Stock. Certain legal matters will be
passed upon for the Underwriters by Willkie Farr & Gallagher.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the Shares
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement and exhibits filed as a part thereof and otherwise
incorporated therein and which may be inspected and copied in the manner and at
the sources described above. Statements contained in this Prospectus as to the
contents of any document referred to are not necessarily complete, and in each
instance reference is made to such exhibit for a more complete description, and
each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission are incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996;
2. The description of the Class A Common Stock contained in the Company's
Registration Statement on Form S-1 under the Securities Act filed with the
Commission on July 30, 1990 (File No. 33-34895); and
3. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents.
31
<PAGE>
Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus, except as so modified or superseded. The Company will
provide without charge to each person to whom a copy of this Prospectus is
delivered, upon written or oral request of such person, a copy of any or all of
the information that has been incorporated by reference in this Prospectus
(excluding exhibits to such information which are not specifically incorporated
by reference into such information). Requests for such documents should be
directed to the Company at its principal executive offices, 64 Fairbanks,
Irvine, California 92718, Attention: Corporate Secretary, telephone (714)
583-9029.
32
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INDEPENDENT AUDITORS' REPORT:
Report of Deloitte & Touche LLP.......................................................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated balance sheets as of February 3, 1996 and January 28, 1995.................................. F-3
Consolidated statements of operations for the years ended February 3, 1996, January 28, 1995 and January
29, 1994................................................................................................ F-4
Consolidated statements of stockholders' equity for the years ended February 3, 1996, January 28, 1995
and January 29, 1994.................................................................................... F-5
Consolidated statements of cash flows for the years ended February 3, 1996, January 28, 1995 and January
29, 1994................................................................................................ F-6
Notes to consolidated financial statements............................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Wet Seal, Inc.:
We have audited the accompanying consolidated balance sheets of The Wet
Seal, Inc. and subsidiary as of February 3, 1996 and January 28, 1995 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 3, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Wet
Seal, Inc. and subsidiary as of February 3, 1996 and January 28, 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended February 3, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
March 11, 1996
Costa Mesa, California
F-2
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1)..................................................... $57,153,000 2$5,369,000
Other receivables...................................................................... 523,000 368,000
Tax refund receivable (Note 3)......................................................... -- 59,000
Merchandise inventories................................................................ 16,241,000 8,194,000
Prepaid expenses....................................................................... 428,000 599,000
Deferred tax charges (Note 3).......................................................... 1,100,000 320,000
----------- -----------
Total current assets............................................................... 75,445,000 34,909,000
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements................................................................. 55,438,000 42,892,000
Furniture, fixtures and equipment...................................................... 21,606,000 19,794,000
Leasehold rights....................................................................... 2,009,000 2,030,000
Construction in progress............................................................... 9,000 316,000
79,062,000 65,032,000
Less accumulated depreciation.......................................................... (41,015,000) (35,719,000)
----------- -----------
Net equipment and leasehold improvements........................................... 38,047,000 29,313,000
----------- -----------
OTHER ASSETS:
Deferred tax charges and other assets (Note 3)......................................... 3,461,000 2,419,000
Goodwill, net of accumulated amortization of $521,000 and $475,000 as of February 3,
1996 and January 28, 1995, respectively............................................... 611,000 657,000
----------- -----------
Total other assets................................................................. 4,072,000 3,076,000
----------- -----------
$117,564,000 6$7,298,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................................... $19,491,000 $8,641,000
Accrued liabilities (Note 11).......................................................... 22,813,000 3,558,000
Income taxes payable (Note 3).......................................................... 3,354,000 237,000
Current portion of long-term debt...................................................... 3,736,000 --
----------- -----------
Total current liabilities.......................................................... 49,394,000 12,436,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt (Note 8)................................................................ 5,264,000 --
Deferred rent.......................................................................... 5,171,000 4,138,000
----------- -----------
Total long-term liabilities........................................................ 10,435,000 4,138,000
----------- -----------
Total liabilities.................................................................. 59,829,000 16,574,000
----------- -----------
COMMITMENTS: (NOTE 6)
STOCKHOLDERS' EQUITY: (NOTES 4 AND 5)
Preferred Stock, $.01 par value, authorized, 2,000,000 shares; none issued and
outstanding........................................................................... -- --
Common Stock, Class A, $.10 par value, authorized 20,000,000 shares; 5,687,066 and
4,328,937 shares issued and outstanding at February 3, 1996 and January 28, 1995,
respectively.......................................................................... 568,000 433,000
Common Stock, Class B Convertible, $.10 par value, authorized 10,000,000 shares;
6,807,665 and 7,907,665 shares issued and outstanding at February 3, 1996 and January
28, 1995, respectively................................................................ 681,000 791,000
Paid-in capital........................................................................ 38,568,000 37,397,000
Retained earnings...................................................................... 17,918,000 12,103,000
----------- -----------
Total stockholders' equity......................................................... 57,735,000 50,724,000
----------- -----------
$117,564,000 6$7,298,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
SALES.............................................. $266,695,000 $132,997,000 $140,129,000
COST OF SALES (including buying, distribution and
occupancy costs).................................. 200,626,000 104,547,000 113,092,000
----------- ----------- -----------
GROSS MARGIN....................................... 66,069,000 28,450,000 27,037,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (Note
9)................................................ 57,531,000 30,698,000 31,576,000
INTEREST INCOME, NET (Note 8)...................... (1,410,000) (882,000) (573,000)
----------- ----------- -----------
NET OPERATING EXPENSES............................. 56,121,000 29,816,000 31,003,000
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES............................................. 9,948,000 (1,366,000) (3,966,000)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 3)...... 4,133,000 (353,000) (1,588,000)
----------- ----------- -----------
NET INCOME (LOSS).................................. $ 5,815,000 $(1,013,000) $(2,378,000)
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE................. $ 0.47 $ (0.08) $ (0.19)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note
1)................................................ 12,387,140 12,234,502 12,227,781
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
CLASS A CLASS B TOTAL
---------------------- ---------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS EQUITY
--------- ----------- --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1993............... 4,320,098 $ 432,000 7,907,665 $ 791,000 $37,368,000 $15,494,000 $54,085,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 6,733 1,000 -- -- 21,000 -- 22,000
Net loss.................................. -- -- -- -- -- (2,378,000) (2,378,000)
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance at January 29, 1994............... 4,326,831 433,000 7,907,665 791,000 37,389,000 13,116,000 51,729,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 2,106 -- -- -- 8,000 -- 8,000
Net loss.................................. -- -- -- -- -- (1,013,000) ( 1,013,000)
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance at January 28, 1995............... 4,328,937 433,000 7,907,665 791,000 37,397,000 12,103,000 50,724,000
Stock issued pursuant to long-term
incentive plan (Note 5).................. 1,453 -- -- -- 11,000 -- 11,000
Exercise of stock options................. 2,000 -- -- -- 7,000 -- 7,000
Conversion of Class B Common Stock to
Class A Common Stock (Note 4)............ 1,100,000 110,000 (1,100,000) (110,000) -- -- --
Issuance of Class A Common Stock pursuant
to acquisition of Contempo Casuals (Note
2)....................................... 254,676 25,000 -- -- 1,153,000 -- 1,178,000
Net income................................ -- -- -- -- -- 5,815,000 5,815,000
--------- ----------- --------- ----------- ---------- ---------- ------------
Balance as of February 3, 1996............ 5,687,066 $ 568,000 6,807,665 $ 681,000 $38,568,000 $17,918,000 $57,735,000
--------- ----------- --------- ----------- ---------- ---------- ------------
--------- ----------- --------- ----------- ---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $5,815,000 ($1,013,000) ($2,378,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 10,384,000 8,057,000 8,142,000
Loss on disposal of equipment and leasehold
improvements............................................. 14,000 124,000 316,000
Stock issued pursuant to long-term incentive plan......... 11,000 8,000 22,000
Deferred tax, net......................................... (2,155,000) (1,162,000) (716,000)
Changes in operating assets and liabilities, net of effect
of acquisition:
Other receivables....................................... 41,000 172,000 (191,000)
Tax refund receivable................................... 59,000 1,766,000 (1,754,000)
Merchandise inventories................................. 2,436,000 93,000 185,000
Prepaid expenses........................................ 1,093,000 133,000 30,000
Other assets............................................ (69,000) 21,000 (18,000)
Accounts payable and accrued liabilities................ 3,529,000 1,352,000 (375,000)
Income taxes payable.................................... 3,117,000 -- --
Deferred rent........................................... 1,033,000 517,000 657,000
----------- ----------- -----------
Total adjustments......................................... 19,493,000 11,081,000 6,298,000
----------- ----------- -----------
Net cash provided by operating activities................... 25,308,000 10,068,000 3,920,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equipment and leasehold improvements.......... (2,585,000) (3,299,000) (3,908,000)
Cash paid for acquisition, less cash acquired............... (20,000) -- --
Proceeds from sale of equipment and leasehold
improvements............................................... 74,000 269,000 32,000
Proceeds from sale of marketable securities................. -- 4,520,000 1,729,000
----------- ----------- -----------
Net cash (used in) provided by investing activities......... (2,531,000) 1,490,000 (2,147,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................................ 10,000,000 -- --
Principal payments on long-term debt........................ (1,000,000) -- --
Proceeds from issuance of stock............................. 7,000 -- --
----------- ----------- -----------
Net cash provided by financing activities................... 9,007,000 -- --
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 31,784,000 11,558,000 1,773,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 25,369,000 13,811,000 12,038,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... 5$7,153,000 2$5,369,000 1$3,811,000
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (refunded) during the year for:
Interest.................................................. $ 498,000 $ -- $ --
Income taxes, net......................................... 2,829,000 (1,187,000) 966,000
SCHEDULE OF NONCASH TRANSACTIONS:
The Company acquired the assets of Contempo Casuals during
the year ended February 3, 1996. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired............................... 2$9,592,000 $ -- $ --
Cash paid to seller and transaction costs................... 750,000 -- --
Common stock issued......................................... 1,178,000 -- --
-----------
Liabilities assumed..................................... 2$7,664,000 -- --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In connection with the acquisition, the Company recorded a net deferred tax
liability of $433,000.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
The Wet Seal, Inc. and subsidiary (the Company) is a nationwide specialty
retailer of moderately priced, fashionable apparel for women. On July 1, 1995,
the Company acquired Contempo Casuals, Inc., a 237-store retail junior women's
chain. This acquisition substantially increased the Company's size, taking it
from 133 stores to 364 stores as of February 3, 1996. The Company's success is
largely dependent upon its ability to gauge the fashion tastes of its customers
and to provide merchandise that satisfies customer demand. The Company's failure
to anticipate, identify or to react to changes in fashion trends could adversely
affect the Company. The voting stock of the Company is majority held by a group
of companies controlled through a voting trust formed by Suzy Shier Inc., a
publicly-traded Canadian retailer.
The Company's fiscal year ends on the Saturday closest to the end of
January. In fiscal 1995, the reporting period included 53 weeks as compared to
52 weeks in each of fiscal years 1994 and 1993.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. Intercompany balances and
transactions have been eliminated.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (first-in,
first-out) or market. Cost is determined using the retail inventory method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Expenditures for
betterment or improvement are capitalized, while expenditures for repairs that
do not significantly increase the life of the asset are expensed as incurred.
Depreciation is provided using primarily the straight-line method over the
estimated useful lives of the assets. Furniture, fixtures and equipment and
vehicles are depreciated over 5 years. Leasehold improvements and the cost of
acquiring leasehold rights are depreciated over the lesser of the term of the
lease or 10 years.
INTANGIBLE ASSET
Excess of cost over net assets acquired (goodwill) is being amortized on the
straight-line method over 25 years. The goodwill was established in fiscal 1984.
The Company assesses the recoverability of goodwill at each balance sheet date
by determining whether the amortization of the balance over its remaining useful
life can be recovered through projected undiscounted future operating cash
flows.
RENTAL EXPENSE
Any defined rental escalations are averaged over the term of the related
lease in order to provide level recognition of rental expense.
INCOME TAX
Deferred tax charges are provided on items, principally depreciation and
rent, for which there are temporary differences in recording such items for
financial reporting purposes and for income tax purposes.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid interest-earning deposits purchased with an initial maturity of
three months or less to be cash equivalents. At February 3,
F-7
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1996 and January 28, 1995, cash equivalents totaled $52,141,000 and $25,218,000,
respectively, bearing interest at rates ranging from approximately 5.3% to 6.1%
at February 3, 1996 and from approximately 5.7% to 6.0% at January 28, 1995.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed based on the weighted average
number of shares outstanding for the period. The effect of Common Stock
equivalents was not significant.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 1996, the Company will be required to adopt Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The primary impact of this standard will relate to additional
disclosure related to the Company's stock option plan. The Company has
determined that it will not change to the fair value method and will continue to
use Accounting Principles Board Opinion No. 25 for measurement and recognition
of employee stock-based transactions. (See Note 5.) In addition, in fiscal 1996
the Company will be required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company anticipates that SFAS No. 121 will not have a material impact on the
Company's financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes the carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximates fair value due to the
short maturity of these financial instruments. Long-term debt bears interest at
a rate indexed to the prime rate; therefore, management believes the carrying
amount for the outstanding borrowings at February 3, 1996 approximates fair
value.
NOTE 2 -- ACQUISITION
On July 1, 1995, the Company acquired the business, assets and properties of
Contempo Casuals, Inc., a 237-store retail junior women's chain with stores in
34 states and Puerto Rico. The purchase price consisted of (a) the issuance of
254,676 shares of the Company's Class A Common Stock which had a value of
$1,178,000 on the date of the acquisition, and (b) $100,000 in cash. The
transaction was accounted for under the purchase method. In connection with the
acquisition, the Company assumed certain liabilities which were estimated by the
seller. The total amount of these assumed liabilities may not, in fact, be paid
as the actual payments will be based on the future claims and losses which are
actually submitted and which are related to pre-acquisition events. (See Note
11.)
On a pro forma basis, if Wet Seal and Contempo had been combined as of the
beginning of fiscal 1995, sales, net profit after tax, and earnings per share
would have been $343,170,000, $2,857,000 and $.23, respectively. On a pro forma
basis, if Wet Seal and Contempo had been combined as of the beginning of fiscal
1994, sales, net loss after tax, and loss per share would have been
$375,238,000, $(31,758,000) and $(2.54), respectively. The fiscal 1994 pro forma
net loss after tax includes a $23,138,000 restructuring charge related primarily
to the closing of certain stores. The unaudited pro forma financial information
presented
F-8
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 2 -- ACQUISITION (CONTINUED)
above is not necessarily indicative of either the results of operations that
would have occurred had the acquisition been at the beginning of the periods
presented or future results of operations of the consolidated companies.
NOTE 3 -- PROVISION (BENEFIT) FOR INCOME TAXES
SFAS No. 109 requires the recognition of deferred tax assets and liabilities
for the future consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of deferred items is based
on enacted tax laws. In the event that the future consequences of differences
between financial reporting bases and the tax bases of the Company's assets and
liabilities result in a deferred tax asset, SFAS No. 109 requires an evaluation
of the probability of being able to realize the future benefits indicated by
such asset. A valuation allowance related to a deferred tax asset is recorded
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. During fiscal 1994, the Company had recorded a
$110,000 valuation allowance which was reversed in fiscal 1995.
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT:
Federal.......................................... $ 5,170,000 $ 573,000 $ (911,000)
State............................................ 1,127,000 236,000 39,000
------------- ------------- -------------
6,297,000 809,000 (872,000)
------------- ------------- -------------
DEFERRED:
Federal.......................................... (1,926,000) (958,000) (375,000)
State............................................ (238,000) (204,000) (341,000)
------------- ------------- -------------
(2,164,000) (1,162,000) (716,000)
------------- ------------- -------------
$ 4,133,000 $ (353,000) $ (1,588,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A reconciliation of income tax provision (benefit) to the amount of the
actual provision (benefit) that would result from applying the federal statutory
rate (35%) to income (loss) before taxes is as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Provision (benefit) for income taxes at federal
statutory rate........................................ 35.0% (35.0)% (35.0)%
State income taxes, net of federal income tax
benefit............................................... 6.5 (3.8) (4.9)
Change in valuation allowance.......................... (1.1) 8.1 --
Other.................................................. 1.1 4.9 (0.1)
----------- ----------- -----------
Effective tax rate..................................... 41.5% (25.8)% (40.0)%
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-9
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 3 -- PROVISION (BENEFIT) FOR INCOME TAXES (CONTINUED)
As of February 3, 1996 and January 28, 1995, the Company's net deferred tax
asset was $4,312,000 and $2,560,000, respectively. The major components of the
Company's net deferred taxes at February 3, 1996 and January 28, 1995 are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Deferred rent..................................................... $ 2,211,000 $ 1,777,000
Facility closure reserve.......................................... 1,542,000 --
Inventory cost capitalization..................................... 476,000 231,000
AMT credit carry forward.......................................... 73,000 249,000
Valuation allowance............................................... -- (110,000)
NOL carry forward................................................. -- 110,000
Difference between book and tax basis of fixed assets............. (453,000) 381,000
State income taxes................................................ (49,000) (175,000)
Other............................................................. 512,000 97,000
------------ ------------
$ 4,312,000 $ 2,560,000
------------ ------------
------------ ------------
</TABLE>
NOTE 4 -- STOCKHOLDERS' EQUITY
The 6,807,665 shares of the Company's Class B Common Stock outstanding as of
February 3, 1996 are convertible on a share-for-share basis into shares of the
Company's Class A Common Stock at the option of the holder. The Class B Common
Stock has two votes per share while the Class A Common Stock has one vote per
share.
During the year ended February 3, 1996, a major stockholder converted
1,100,000 shares of Class B Common Stock to Class A Common Stock. These shares
were then sold to the public through a registration statement on Form S-3. The
Company did not receive any proceeds from this transaction.
On July 1, 1995, 254,676 shares of the Company's Class A Common Stock were
issued pursuant to the acquisition of Contempo Casuals, Inc. (See Note 2)
NOTE 5 -- LONG-TERM INCENTIVE PLAN
Under the Company's long-term incentive plans (the "plans"), the Company may
grant stock options which are either incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options. The plans provide that the per share exercise price
of an incentive stock option may not be less than the fair market value of the
Company's Class A Common Stock on the date the option is granted. Options become
exercisable over periods of up to five years and generally expire ten years from
the date of grant or 90 days after employment or services are terminated. The
plans also provide that the Company may grant restricted stock and other
stock-based awards. An aggregate of 775,000 shares of the Company's Class A
Common Stock may be issued pursuant to the plans. As of February 3, 1996,
101,932 shares were available for future grants and 185,000 shares were
exercisable.
F-10
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 5 -- LONG-TERM INCENTIVE PLAN (CONTINUED)
Stock option activity for each of the three years in the period ended
February 3, 1996 was as follows:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF
SHARES PRICES PER SHARE
----------- ----------------
<S> <C> <C>
Outstanding January 31, 1993.............................................. 80,000 $9.13 - $14.25
Granted................................................................. -- --
----------- ----------------
Outstanding January 29, 1994.............................................. 80,000 $9.13 - $14.25
Granted................................................................. 575,000 $3.00 - $ 4.75
Canceled................................................................ (40,000) $ 4.13
----------- ----------------
Outstanding January 28, 1995.............................................. 615,000 $3.00 - $14.25
Granted................................................................. 30,000 $5.13 - $ 8.00
Canceled................................................................ (8,000) $3.63 - $ 4.13
Exercised............................................................... (2,000) $3.63 - $ 4.13
----------- ----------------
Outstanding February 3, 1996.............................................. 635,000 $3.00 - $14.25
----------- ----------------
----------- ----------------
</TABLE>
As of February 3, 1996, the Company has granted an aggregate of 36,068
shares of Class A Common Stock, net of forfeitures, to a group of its key
employees under the performance grant award plan which was instituted pursuant
to the Company's plans. Under the performance grant award plan, key employees of
the Company receive Class A Common Stock in proportion to their salary. These
bonus shares vest at the rate of 33.33% per year and non-vested shares are
subject to forfeiture if the participant terminates employment. Compensation
expense, equal to the market value of the shares as of the issue date, is being
charged to earnings over the period that the employees provide service. In each
of the years ended February 3, 1996, January 28, 1995 and January 29, 1994,
1,453, 2,106 and 6,733 shares, respectively, were fully vested and issued.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation," which requires adoption of the disclosure provisions no later
than years beginning after December 15, 1995 and adoption of the recognition and
measurement provisions for non-employee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period which is usually the vesting
period.
Pursuant to the new accounting standard, companies may adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but
would be required to disclose in a note to the financial statements pro forma
net income and, if presented, earnings per share as if the company had applied
the new method of accounting. The Company has concluded that it will continue to
account for stock options under Accounting Principles Board Opinion No. 25. The
Company will be required to adopt this new accounting standard in fiscal 1996.
NOTE 6 -- COMMITMENTS
LEASES
The Company leases retail stores, automobiles, computers and a corporate
office and warehouse facilities under operating lease agreements expiring at
various times through 2006. Substantially all of the leases require the Company
to pay maintenance, insurance, property taxes and percentage rent ranging from
4.5% to 10%, based on sales volume over certain minimum sales levels.
F-11
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 6 -- COMMITMENTS (CONTINUED)
Minimum annual rental commitments under non-cancelable leases are as
follows:
<TABLE>
<S> <C> <C>
FISCAL YEAR
ENDING: 1997....................................... $40,704,000
1998....................................... 36,270,000
1999....................................... 32,463,000
2000....................................... 29,393,000
2001....................................... 26,328,000
Thereafter................................. 49,548,000
-----------
$214,706,000
-----------
-----------
</TABLE>
Rental expense, including common area maintenance, was $46,010,000,
$22,728,000 and $21,595,000, of which $152,000, $286,000 and $464,000 was paid
as percentage rent based on sales volume, for the years ended February 3, 1996,
January 28, 1995 and January 29, 1994, respectively.
EMPLOYMENT CONTRACTS
The Company has employment contracts with two officers which provide for
minimum annual salaries, customary benefits and allowances, and incentive
bonuses if specified Company earnings levels are achieved. The agreements
provide these same officers with severance benefits which approximate three
years' salary and bonus if the agreements are terminated without cause before
expiration of their terms or if the individual's duties materially change
following a change in control of the Company.
LITIGATION
The Company is a defendant in various lawsuits arising in the ordinary
course of its business. While the ultimate liability, if any, arising from these
claims cannot be predicted with certainty, the Company is of the opinion that
their resolution will not likely have a material adverse effect on the Company's
financial statements.
LETTERS OF CREDIT
At February 3, 1996, the Company had outstanding letters of credit amounting
to approximately $1,610,000.
NOTE 7 -- REVOLVING CREDIT ARRANGEMENT
Under unsecured revolving line-of-credit arrangements with a bank, the
Company may borrow up to a maximum of $30 million in loans on a revolving basis
through July 1, 1996. The cash borrowings under the arrangements bear interest
at the bank's prime rate or, at the Company's option, LIBOR plus 1.75% for the
Wet Seal facility ($10,000,000) and plus 2.00% for the Contempo Casuals facility
($20,000,000). The Company had no borrowings outstanding under these credit
agreements at February 3, 1996 or January 28, 1995.
NOTE 8 -- LONG-TERM DEBT
In June 1995, the Company entered into an unsecured five-year, $10 million
term loan. The loan bears interest at the bank's prime rate plus .25% or, at the
Company's option, LIBOR plus 2.25% (7.625% at fiscal year end). The estimated
annual principal payments on the loan, not including the mandatory prepayments,
are $2,000,000 payable in quarterly installments of $500,000 beginning October
31, 1995.
The credit agreement imposes quarterly and annual financial covenants
requiring the Company to maintain certain financial ratios and achieve certain
levels of annual income. In addition, the credit agreement requires that the
bank approve the payment of dividends and restricts the level of capital
expenditures. At February 3, 1996, the Company was in compliance with these
covenants.
F-12
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 8 -- LONG-TERM DEBT (CONTINUED)
The loan also provides for a mandatory prepayment each fiscal year which is
to be paid by May 31st of the following fiscal year. This prepayment is based on
cash flows. For the year ended February 3, 1996, the prepayment amount was
$1,736,000.
NOTE 9 -- RELATED PARTY TRANSACTIONS
Certain officers of Suzy Shier Inc. provide management services to the
Company. For these services, the officers earned in the aggregate a management
fee of $250,000 during each of the years ended February 3, 1996, January 28,
1995 and January 29, 1994, respectively.
The Company obtains its comprehensive general liability and property
insurance through Dylex, Inc., the former majority stockholder of the Company.
The Company paid Dylex, Inc. $1,012,000, $350,000 and $352,000 for this
insurance for the years ended February 3, 1996, January 28, 1995 and January 29,
1994, respectively.
NOTE 10 -- RETIREMENT PLAN
Effective June 1, 1993, the Company established a qualified defined
contribution retirement plan under the Code, Section 401(k). The Wet Seal
Retirement Plan (the "Plan") is available to all employees who meet the Plan's
eligibility requirements. The Plan is funded by employee contributions, and
additional contributions may be made by the Company at its discretion. As of
February 3, 1996 the Company has not made any contributions to the Plan.
NOTE 11 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
------------- ------------
<S> <C> <C>
Reserve for self insurance....................................... $ 4,638,000 $ --
Accrued wages, bonuses and benefits.............................. 3,610,000 757,000
Combination costs................................................ 3,500,000 --
Gift certificate and credit memo liability....................... 1,828,000 631,000
Sales tax payable................................................ 1,102,000 1,197,000
Other............................................................ 8,135,000 973,000
------------- ------------
$ 22,813,000 $ 3,558,000
------------- ------------
------------- ------------
</TABLE>
In connection with the acquisition of Contempo Casuals, Inc., the Company
assumed certain accruals, including the reserve for self insurance, which were
estimated by the seller. The total amount of these assumed accruals may not, in
fact be paid as the actual payments will be based on the future claims and
losses which are actually submitted and which are related to pre-acquisition
events. The combination costs of $3,500,000 consist of the estimated costs
associated with the closing and\or combination of certain Contempo Casuals
facilities and operations into the Wet Seal's facilities. These costs primarily
consist of the difference between the Contempo distribution facility lease
obligation and the anticipated sublease income to be received over the remaining
term of this lease, and the estimated costs in connection with anticipated store
closings.
F-13
<PAGE>
THE WET SEAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
NOTE 12 -- UNAUDITED QUARTERLY FINANCIAL DATA
FISCAL YEAR ENDED FEBRUARY 3, 1996
<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
QUARTER SALES GROSS MARGIN (LOSS) SHARE
------------------------------------------------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
First Quarter.......................................... $ 29,839,000 $ 5,642,000 $ (671,000) $ (0.05)
Second Quarter......................................... 44,883,000 8,944,000 (733,000) (0.06)
Third Quarter.......................................... 88,674,000 21,661,000 1,822,000 0.15
Fourth Quarter......................................... 103,299,000 29,822,000 5,397,000 0.43
-------------- ------------- ------------ -----------
For the Year........................................... $ 266,695,000 $ 66,069,000 $ 5,815,000 $ 0.47
-------------- ------------- ------------ -----------
-------------- ------------- ------------ -----------
</TABLE>
FISCAL YEAR ENDED JANUARY 28, 1995
<TABLE>
<CAPTION>
NET INCOME
NET INCOME (LOSS) PER
QUARTER SALES GROSS MARGIN (LOSS) SHARE
------------------------------------------------------ -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
First Quarter......................................... $ 30,202,000 $ 5,943,000 $ (662,000) $ (0.05)
Second Quarter........................................ 31,057,000 5,457,000 (1,215,000) (0.10)
Third Quarter......................................... 35,366,000 8,034,000 216,000 0.02
Fourth Quarter........................................ 36,372,000 9,016,000 648,000 0.05
-------------- ------------- ------------- -----------
For the Year.......................................... $ 132,997,000 $ 28,450,000 $ (1,013,000) $ (0.08)
-------------- ------------- ------------- -----------
-------------- ------------- ------------- -----------
</TABLE>
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................... $17,901.83
NASD Registration Fee.......................................... 5,691.53
Nasdaq Listing Fee............................................. 15,300.00
Accounting Fees and Expenses................................... 50,000.00
Legal Fees and Expenses........................................ 140,000.00
Blue Sky Fees and Expenses..................................... 10,000.00
Printing and Engraving Expenses................................ 75,000.00
Miscellaneous Expenses......................................... 1,106.64
----------
Total.......................................................... $315,000.00
----------
----------
</TABLE>
The Company and the Selling Stockholders will pay such expenses in
proportion to the proceeds received by them in connection with the Offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") permits indemnification of directors, officers, employees and
agents of corporations subject to certain limitations.
The Restated Certificate and the Bylaws of the Company provide for
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
STATUTORY PROVISIONS
Section 102(b)(7) of the Delaware Law enables a corporation in its
certificate of incorporation to eliminate or limit the personal liability of
members of its board of directors to the corporation or its stockholders for
monetary damages for violations of a director's fiduciary duty of care. Such a
provision would have no effect on the availability of equitable remedies, such
as an injunction or rescission, for breach of fiduciary duty. In addition, no
such provision may eliminate or limit the liability of a director for breaching
his duty of loyalty, failing to act in good faith, engaging in intentional
misconduct or knowingly violating a law, paying an unlawful dividend or
approving an illegal stock repurchase, or obtaining an improper personal
benefit.
Section 145 of the Delaware Law empowers a corporation to indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. No indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. Additionally, a corporation is required
II-1
<PAGE>
to indemnify its directors and officers against actual and reasonable expenses
to the extent that such directors or officers have been successful on the merits
or otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter therein.
An indemnification can be made by the corporation only upon a determination
that indemnification is proper in the circumstances because the party seeking
indemnification has met the applicable standard of conduct as set forth in the
Delaware Law. The indemnification provided by the Delaware Law shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. A corporation also has the power to purchase and
maintain insurance on behalf of any person, whether or not the corporation would
have the power to indemnify him against such liability. The indemnification
provided by the Delaware Law shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
THE COMPANY'S CHARTER AND BYLAW PROVISIONS
The Restated Certificate limits the director's liability for monetary
damages to the Company and its stockholders for breaches of fiduciary duty
except under the circumstances outlined in Section 102(b)(7) of the Delaware Law
as described above under "Statutory Provisions."
The Company's Bylaws extend indemnification rights to the fullest extent
authorized by the Delaware Law to directors and officers involved in any action,
suit or proceeding where the basis of such involvement is such person's alleged
action in an official capacity or in any other capacity while serving as a
director or officer in the Company. In addition, the Bylaws permit the Company
to maintain insurance to protect itself and any of its directors, officers,
employees or agents against any expense, liability or loss incurred as a result
of any action, suit or proceeding whether or not the Company would have the
power to indemnify such person under the Delaware Law.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with each of its
directors and with its Chief Financial Officer, Ann Cadier Kim, pursuant to
which the Company has agreed to advance expenses for the defense of and to
indemnify such persons to the fullest extent permitted by applicable law.
ITEM 16. EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or
II-2
<PAGE>
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irvine, State of California, on the 17th day of
May 1996.
THE WET SEAL, INC.
(Registrant)
By: /s/ EDMOND S. THOMAS
-----------------------------------
Edmond S. Thomas
PRESIDENT AND CHIEF OPERATING
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
*
------------------------------------------- Chairman of the Board and Director May 17, 1996
Irving Teitelbaum
* Vice Chairman and Chief Executive
------------------------------------------- Officer and Director (Principal May 17, 1996
Kathy Bronstein Executive Officer)
/s/ EDMOND S. THOMAS
------------------------------------------- President and Chief Operating Officer May 17, 1996
Edmond S. Thomas and Director
* Vice President of Finance and Chief
------------------------------------------- Financial Officer (Principal Financial May 17, 1996
Ann Cadier Kim and Accounting Officer)
*
------------------------------------------- Secretary and Director May 17, 1996
Stephen Gross
*
------------------------------------------- Director May 17, 1996
Wilfred Posluns
*
------------------------------------------- Director May 17, 1996
Gerald Randolph
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------------ ---------------------------------------- ---------------
<C> <S> <C>
*
------------------------------------------- Director May 17, 1996
Alan Siegel
*
------------------------------------------- Director May 17, 1996
George H. Benter, Jr.
*
------------------------------------------- Director May 17, 1996
Walter F. Loeb
*By: /s/ EDMOND S. THOMAS
--------------------------------------
Edmond S. Thomas
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
---------- ---------------------------------------------------------------------------------------- -------------
<C> <S> <C>
1.1** Form of Underwriting Agreement
4.1* Specimen certificate of the Class A Common Stock
4.2* Specimen certificate of the Class B Common Stock
5.1*** Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
9.1** Form of Amendment to Voting Trust Agreement by and among 2927977 Canada Inc.,
Gross-Teitelbaum Holdings Inc., Suzy Shier Inc., Los Angeles Express Fashions Inc.,
Maryse Bertrand and Suzy Shier Limited
23.1*** Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in Exhibit 5.1)
23.2** Consent of Deloitte & Touche LLP
24.1*** Power of Attorney (included on the signature page of the Registration Statement)
<FN>
------------------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (File No. 33-34895)
** Filed Herewith
*** Previously filed
</TABLE>
II-6
<PAGE>
WF&G Draft 5.16.96
The Wet Seal, Inc.
3,100,000 Shares
Class A Common Stock
(Par Value $0.10 Per Share)
_______________
UNDERWRITING AGREEMENT
New York, New York
May [___], 1996
SCHRODER WERTHEIM & CO. INCORPORATED
MONTGOMERY SECURITIES
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Schroder Wertheim & Co. Incorporated
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Dear Sirs:
The Wet Seal, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters"), an aggregate of
765,000 shares of Class A Common Stock, par value $0.10 per share (the "Class
A Common Stock"), and certain Selling Stockholders designated in Schedule II
hereto propose, subject to the terms and conditions stated herein, to sell to
the Underwriters an aggregate of 2,335,000 shares of Class B Common Stock,
par value $0.10 per share (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Common Stock"), which, simultaneously upon the
sale of such shares to the Underwriters hereunder, shall be converted by the
Company into an equivalent number of shares of Class A Common Stock pursuant
to Section 4.3(c) of the Company's Restated Certificate of Incorporation.
The 3,100,000 shares of Common Stock to be sold by the Company and certain
Selling Stockholders are herein referred to as the "Firm Securities." In
addition, certain of the Selling Stockholders designated in Schedule II
hereto propose to grant to the Underwriters an option to purchase up to an
aggregate of 465,000 additional shares of Common Stock (together, the "Option
Securities"), on the terms and for the purposes set forth in Section 4
hereof. The Firm Securities and the Option Securities are herein
collectively referred to as the "Securities." Each of the entities named in
Schedule II hereto which offers to sell Firm Securities and each of the
entities and persons named in Schedule
<PAGE>
II hereto from whom the Underwriters actually purchase any Option Securities
shall be referred to herein collectively as the "Selling Stockholders" and
individually as a "Selling Stockholder." Except as may be expressly set
forth below, any reference to you in this Agreement shall be solely in your
capacity as the Representatives.
Section 1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, each of the Underwriters
that:
(a) A registration statement on Form S-3 (File No. 333-4246), and as a
part thereof a preliminary prospectus, in respect of the Securities, has been
filed with the Securities and Exchange Commission (the "Commission") in the form
heretofore delivered to you and, with the exception of exhibits to the
registration statement, to you for each of the other Underwriters; if such
registration statement has not become effective, an amendment (the "Final
Amendment") to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective,
will promptly be filed by the Company with the Commission; if such registration
statement has become effective and any post-effective amendment to such
registration statement has been filed with the Commission prior to the execution
and delivery of this Agreement, which amendment or amendments shall be in form
reasonably acceptable to you, the most recent of such amendment has been
declared effective by the Commission; if such registration statement has become
effective, a final prospectus (the "Rule 430A Prospectus") relating to the
Securities containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the rules and regulations of the Commission under
the Securities Act of 1933, as amended (the "Act"), will promptly be filed by
the Company pursuant to Rule 424(b) of the rules and regulations of the
Commission under the Act (any preliminary prospectus filed as part of such
registration statement being herein called a "Preliminary Prospectus," such
registration statement as amended at the time that it becomes or became
effective, or, if applicable, as amended at the time the most recent post-
effective amendment to such registration statement filed with the Commission
prior to the execution and delivery of this Agreement became effective (the
"Effective Date"), including all exhibits thereto and all information deemed to
be a part thereof at such time pursuant to Rule 430A of the rules and
regulations of the Commission under the Act, being herein called the
"Registration Statement" and the final prospectus relating to the Securities in
the form first filed pursuant to Rule 424(b)(1) or (4) of the rules and
regulations of the Commission under the Act or, if no such filing is required,
the form of final prospectus included in the Registration Statement, being
herein called the "Prospectus"); any reference herein to any Preliminary
Prospectus or the Prospectus or the Registration Statement shall be deemed to
include any information incorporated by reference therein, as of the date of
such Preliminary Prospectus, the Prospectus or the Registration Statement, as
the case may be, and any reference to
2
<PAGE>
any amendment or supplement to any Preliminary Prospectus, the Prospectus or the
Registration Statement shall be deemed to refer to any documents filed after
such date under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder and so
incorporated by reference.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company expressly for
use therein by an Underwriter through you or by a Selling Stockholder and
relating solely to such Selling Stockholder.
(c) On the Effective Date and the date the Prospectus is filed with the
Commission and at all times subsequent thereto up to and including the Time of
Delivery and any Option Securities Delivery Date hereinafter mentioned, and when
any further amendment or supplements thereto become effective or are filed with
the Commission, as the case may be, the Registration Statement, the Prospectus
and such amendment or supplements did and will conform in all material respects
to the requirements of the Act and the rules and regulations of the Commission
thereunder, and did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; PROVIDED, HOWEVER, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Company expressly for use therein by an Underwriter through you or by a Selling
Stockholder and relating solely to such Selling Stockholder.
(d) The documents incorporated by reference in the Prospectus, when they
were filed with the Commission, conformed in all material respects to the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) Each of the Company and the Subsidiary (defined below) has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of
3
<PAGE>
Delaware, with power and authority (corporate and other) to own and lease its
properties and assets and to conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which it owns or leases property or assets, or conducts any
business, so as to require such qualification (except where the failure to so
qualify would not have, or could not reasonably be expected to have, a material
adverse effect on the condition, financial or otherwise, or the business affairs
of the Company and the Subsidiary, taken as a whole (a "Material Adverse
Effect")); and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
(f) Except for Contempo Casuals, Inc., a Delaware corporation (the
"Subsidiary"), and WSCC Buying Corp., a Delaware corporation, the Company does
not own or control, directly or indirectly, any shares of capital stock of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity, in each case representing 5% or more of the
outstanding capital stock or equity interests of such corporation, firm,
partnership, joint venture, association or other entity. WSCC Buying Corp. (i)
was organized solely in connection with the Company's acquisition of Contempo
Casuals, a California corporation, (ii) has conducted no business, other than
matters relating solely to its organization and (iii) has no assets or
liabilities other than the amount of cash contributed to its capital account
with respect to the par value of the shares of common stock issued to the
Company in connection with its organization. All the issued shares of capital
stock of the Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable, and are owned by the Company free and clear of
all liens, encumbrances, security interests or claims; there are no outstanding
options, warrants or other rights calling for (or permitting a call for) the
issuance of, and there are no commitments, plans or arrangements to issue, any
shares of capital stock of the Subsidiary or any security convertible or
exchangeable or exercisable for capital stock of the Subsidiary.
(g) The Company has an authorized, issued and outstanding capitalization,
as of February 3, 1996, as set forth in the Registration Statement, and all the
issued and outstanding shares of capital stock of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable, are free of
any preemptive rights or other rights to subscribe for or purchase securities
from the Company, rights of first refusal or similar rights, were issued and
sold in compliance with applicable Federal and state securities laws and conform
in all material respects to the description in the Prospectus; except as
described in the Prospectus, there are no outstanding options to purchase (other
than options granted under the Company's 1990 Long-Term Incentive Plan and 1994
Long-Term Incentive Plan), or any
4
<PAGE>
preemptive rights or other rights calling for (or permitting a call for) the
issuance of, and there are no commitments, plans or arrangements to issue, any
shares of capital stock of the Company or any security convertible or
exchangeable or exercisable for capital stock of the Company; there are no
holders of securities of the Company who, by reasons of the filing of the
Registration Statement have the right (and have not waived such right) to
request the Company to include in the Registration Statement, or otherwise to
have registered pursuant to the Act, securities owned by them.
(h) The Securities to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued, fully paid and non-assessable, free and clear of any liens,
encumbrances, security interests, restrictions, voting trust arrangements,
claims or other defects of title, except as may have been created by any
Underwriter, and will conform in all material respects to the description
thereof in the Prospectus and will be eligible for trading on the Nasdaq
National Market as of the Effective Date.
(i) The Company has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement; the execution, delivery and
performance by the Company of its obligations under this Agreement have been
duly and validly authorized by all requisite corporate action of the Company;
and this Agreement constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that the enforceability of this Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(j) The execution, delivery and performance of this Agreement, the
consummation of the transactions herein contemplated and the issue and sale of
the Securities and the compliance by the Company with all the provisions of this
Agreement will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge, claim, or encumbrance (collectively,
"Liens") upon, any of the property or assets of the Company or the Subsidiary
pursuant to, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument of any nature whatsoever to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary is bound or to
which any of the property or assets of the Company or the Subsidiary is subject,
except for such conflicts, breaches, violations, defaults or Liens that would
not, individually or in the aggregate, have a Material Adverse Effect; nor will
such action result in any violation of the provisions of the Certificate of
Incorporation or the By-laws, in each case as amended to the date
5
<PAGE>
hereof, of the Company or the Subsidiary or, to the Company's knowledge, any
statute, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or the Subsidiary or any of their
properties or assets; and no consent, approval, authorization, order,
registration or qualification of or with any court or governmental agency or
body is required for the issue and sale of the Securities or the consummation of
the other transactions contemplated by this Agreement, except the registration
under the Act of the Securities, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and distribution of
the Securities by the Underwriters and the clearance of such offering with the
National Association of Securities Dealers, Inc. (the "NASD").
(k) The consolidated financial statements and schedules of the Company,
and the related notes thereto, included or incorporated by reference in the
Registration Statement and the Prospectus present fairly the financial
condition, the results of operations and the cash flows of the Company and the
Subsidiary on a consolidated basis as of the dates and for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved, except as otherwise stated
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus is accurately presented and, to
the extent such information and data is derived from the financial statements
and books and records of the Company and the Subsidiary, is prepared on a basis
consistent with such financial statements and the books and records of the
Company and the Subsidiary; no other financial statements or schedules are
required to be included or incorporated by reference in the Registration
Statement and the Prospectus.
(l) Neither the Company nor the Subsidiary has sustained since the date of
the latest audited financial statements included in the Prospectus, any loss or
interference with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, except for any loss or interference which
would not have a Material Adverse Effect; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been, and prior to the Time of Delivery (as defined in Section 4
hereof) there will not be, any change in the capital stock (other than shares
issued pursuant to exercise of employee stock options that the Prospectus
indicates are outstanding (the "Employee Option Shares")), or short-term debt or
long-term debt of the Company or the Subsidiary, or any material adverse change,
or any development which could reasonably be expected to have a material adverse
change, in or affecting the general affairs, management, financial position,
6
<PAGE>
stockholders' equity or results of operations of the Company or the Subsidiary.
(m) Deloitte & Touche LLP, who have certified certain financial statements
of the Company and the Subsidiary and delivered their report with respect to the
audited consolidated financial statements and schedules included in the
Registration Statement and the Prospectus, are independent public accountants as
required by the Act and the rules and regulations of the Commission thereunder.
(n) The Company and the Subsidiary have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the conduct of their respective
businesses, in each case free and clear of all liens, encumbrances and defects,
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiary, and any real property and buildings held under lease
by the Company or the Subsidiary are held by them under valid, subsisting and
enforceable leases, except as stated in the Prospectus, and with such other
exceptions that individually or in the aggregate are not material and do not
interfere with the use made and proposed to be made of such real property and
buildings by the Company and the Subsidiary.
(o) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened, to which the
Company or the Subsidiary or any of their respective officers or directors is or
may be a party or of which any property or assets owned or leased by the Company
or the Subsidiary is subject, other than litigation or proceedings incident to
the business conducted by the Company and the Subsidiary and which would not, if
adversely determined, individually or in the aggregate, have a Material Adverse
Effect; neither the Company nor the Subsidiary is involved in any labor dispute,
nor, to the Company's knowledge, is any labor dispute threatened.
(p) The Company and the Subsidiary have such licenses, permits and other
approvals or authorizations of and from governmental and regulatory authorities
("Permits") as are necessary under applicable law (i) to own their respective
properties and assets that are material to the conduct of their respective
businesses and (ii) to conduct their respective businesses in the manner now
being conducted and as described in the Prospectus; and the Company and the
Subsidiary have fulfilled and performed all of their respective material
obligations with respect to such Permits, and no event has occurred which
allows, or after notice or lapse of time or both would allow, revocation or
termination thereof or result in any other material impairment of the rights of
the holder of any such Permits.
7
<PAGE>
(q) There are no contracts or other documents that are required to be
described in or filed as exhibits to the Registration Statement which are not
described therein or filed or incorporated by reference as exhibits thereto; and
all such contracts to which the Company or the Subsidiary is a party are in full
force and effect on the date hereof, except as disclosed in the Prospectus; and,
neither the Company nor the Subsidiary is, nor to the knowledge of the Company,
any other party, in breach of or in default under any such contract, except as
disclosed in the Prospectus.
(r) The Company or the Subsidiary owns or possesses the patent rights,
licenses, inventions, trademarks, service marks, trade names, copyrights,
technology and know-how described in the Prospectus as being owned by the
Company or the Subsidiary or that are material to the conduct of the business
now or proposed to be operated by them (collectively, the "Intellectual
Property"); neither the Company nor the Subsidiary has knowledge that the
Intellectual Property infringes or conflicts with the rights of others which,
singly or in the aggregate, could be expected to have a Material Adverse Effect,
and to the best knowledge of the Company, there is no infringement by others of
the Intellectual Property. The Company and the Subsidiary have taken all
necessary and desirable action to maintain and protect the Intellectual Property
that they own or use which are material to their business. There are no claims,
actions, suits or other proceedings, challenging or questioning the legality,
validity, enforceability, use or ownership of the Intellectual Property, nor to
the best knowledge of the Company, is any such claim threatened or is there a
valid basis for any such claim, except for such violations which individually or
in the aggregate would not have a Material Adverse Effect.
(s) Neither the Company nor the Subsidiary is in violation of any term or
provision of its Certificate of Incorporation or By-laws, in each case as
amended to the date hereof; and neither the Company nor the Subsidiary is in
violation of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or the Subsidiary, or of any decree, order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or the Subsidiary, except for such violations
which individually or in the aggregate would not have a Material Adverse Effect.
(t) No default exists, and no event has occurred which with notice or
lapse of time, or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, bank loan or credit agreement, lease or other agreement or instrument
of any nature whatsoever to which the Company or the Subsidiary is a party or by
which any of them or their respective properties or assets is bound or may be
bound, except for such defaults that would not, either individually or in the
aggregate, have a Material Adverse Effect.
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(u) As of the date hereof, the Company and the Subsidiary have timely
filed all necessary tax returns and notices that are required to have been filed
prior to the date hereof and have paid all federal, state, county, local and
foreign taxes of any nature whatsoever (including, but not limited to, income,
sales, unemployment, and social security taxes) that have become due, whether
pursuant to any assessments, or otherwise, and there is no further liability
(whether or not disclosed on such returns) or assessments for any such taxes,
and no interest or penalties accrued or accruing with respect thereto, except as
may be set forth or adequately reserved for in the financial statements included
in the Registration Statement; to the Company's best knowledge, the amounts
currently set up as provisions for taxes or otherwise by the Company and
Subsidiary on their books and records are sufficient for the payment of all
their unpaid federal, foreign, state, county and local taxes accrued through the
date hereof, and for which the Company and the Subsidiary may be liable in their
own right, or as a transferee of the assets of, or as successor to any other
corporation, association, partnership, joint venture or other entity.
(v) The Company and the Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(w) None of the Company, the Subsidiary, or their respective officers,
directors, employees or agents have taken or will take, directly or indirectly,
any action designed to or which has constituted or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.
(x) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING
STOCKHOLDERS. Each Selling Stockholder (or in the case of Section 2(h) hereto
only, 2927977 Canada Inc. and Gross-Teitelbaum Holdings Inc.), severally and
not jointly, represents and warrants to, and agrees with, each of the
Underwriters that:
(a) Except for the Voting Trust Agreement (as defined in Section 8(e)
hereof), which will terminate effective at the Time of Delivery, such Selling
Stockholder has, and at the Time of Delivery (as defined in Section 4 hereof)
will have, good and valid title to the Securities to be sold by such Selling
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Stockholder hereunder, free and clear of any liens, encumbrances, security
interests, claims, voting trust arrangements and other restrictions of any
nature whatsoever, and such Selling Stockholder has the full legal right, power
and authority, and any approval required by law, to enter into this Agreement,
to sell, assign, transfer and deliver the Securities being sold by such Selling
Stockholder hereunder, to make the representations, warranties, covenants and
agreements made by it in this Agreement and to perform its obligations under
this Agreement; and upon the delivery of and payment for such Securities as
herein provided, the several Underwriters will acquire good and valid title
thereto, free and clear of all liens, encumbrances, security interests, claims,
voting trust arrangements and other restrictions of any nature whatsoever,
except as may have been created by any Underwriter.
(b) Such Selling Stockholder (other than a Selling Stockholder that is a
natural person) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to own and lease its
properties and assets and to conduct its business.
(c) Such Selling Stockholder that is a natural person has duly executed
and delivered a power of attorney (with respect to such Selling Stockholder, the
"Power-of-Attorney"), in the form attached hereto as EXHIBIT A, appointing
Irving Teitelbaum and Edmond S. Thomas and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with authority to
execute, deliver and perform this Agreement on behalf of such Selling
Stockholder, to authorize the delivery of the Option Securities to be sold by
such Selling Stockholder hereunder (including any exercise of options and
payment of the exercise price with respect to the Option Securities to be sold
by such Selling Stockholder hereunder) and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated by this
Agreement and the Custody Agreement (as defined below).
(d) Such Selling Stockholder that is a natural person has duly executed
and delivered a custody agreement (with respect to such Selling Stockholder, the
"Custody Agreement"), in the form attached hereto as Exhibit B, with Goodman
Phillips & Vineberg, as custodian (the "Custodian"), pursuant to which such
Selling Stockholder has deposited with the Custodian an irrevocable notice of
election to exercise options for up to that number of shares of Class A Common
Stock equal to the number of Option Securities to be sold hereunder by such
Selling Stockholder, together with an instruction to the Representatives to
deliver, simultaneously upon the exercise of such options and the sale of the
Option Securities issuable upon the exercise thereof, (i) an amount to the
Company, on behalf of such Selling Stockholder, equal to the aggregate
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exercise price of the options related to such Option Securities and (ii) an
amount to the Custodian equal to the purchase price of the Option Securities
purchased from such Selling Stockholder less the amount in this Section 2(d),
clause (i). Such Selling Stockholder agrees that (A) the options underlying the
Option Securities to be sold by such Selling Stockholder are subject to the
interests of the Underwriters hereunder, (B) (1) the arrangements made under the
Custody Agreement, (2) the appointment of the Attorneys-in-Fact pursuant to the
Power-of-Attorney and (3) the right, power and authority of the Attorneys-in-
Fact to execute and deliver this Agreement and to carry out the terms of this
Agreement are, in each case, irrevocable (subject to any rights of termination
thereunder) and (C) except as provided in this Agreement, the Custody Agreement
or the Power-of-Attorney, the obligations of such Selling Stockholder hereunder
or thereunder shall not be terminated by any act of such Selling Stockholder, or
by operation of law or otherwise, including, but not limited to, such
Stockholder's death or incapacity or the occurrence of any other event. If any
Selling Stockholder shall die or become incapacitated, or if any other event
should occur before the exercise of the options referred to herein, such options
shall be exercised by the Custodian in accordance with the respective terms and
conditions of this Agreement and the Custody Agreement as if such death,
incapacity or other event had not occurred, regardless of whether or not the
Custodian or the Attorneys-in-Fact shall have received notice thereof.
(e) Such Selling Stockholder (other than a Selling Stockholder that is a
natural person) has all requisite power and authority to execute, deliver and
perform such Selling Stockholder's obligations under this Agreement; the
execution, delivery and performance by such Selling Stockholder (other than a
Selling Stockholder that is a natural person) of its obligations under this
Agreement have been duly and validly authorized by all requisite corporate
action on the part of such Selling Stockholder; and this Agreement, any
applicable Custody Agreement and any applicable Power-of-Attorney constitute the
legal, valid and binding obligation of such Selling Stockholder, enforceable
against such Selling Stockholder in accordance with its terms, except to the
extent that the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(f) The execution, delivery and performance of this Agreement, any
applicable Custody Agreement and any applicable Power-of-Attorney and the
consummation of the transactions contemplated herein and therein and the
compliance by such Selling Stockholder with all the provisions hereof and
thereof will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge, claim or encumbrance upon, any of the
property or assets of such Selling
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Stockholder pursuant to, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument of any nature whatsoever to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to which
any of such Selling Stockholder's property or assets is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or the By-laws (or similar corporate constituent documents), in
each case as amended to the date hereof, of such Selling Stockholder (with
respect to any Selling Stockholder that is not a natural person) or any statute,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over such Selling Stockholder or any of such Selling Stockholder's
properties or assets; and no Selling Stockholder is required to obtain any
consent, approval, authorization, order, registration or qualification of or
with any court or governmental agency or body for the sale of the Securities or
the consummation of the other transactions contemplated by this Agreement, any
applicable Custody Agreement and any applicable Power-of-Attorney, except the
registration under the Act of the Securities, and such consents, approvals,
authorizations, registrations or qualifications as may be required under state
or foreign securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriters and the clearance of such
offering with the NASD.
(g) Such Selling Stockholder has not taken, and will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.
(h) Without having undertaken to determine independently the accuracy or
completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Stockholder (i) has no reason to believe that the representations
and warranties of the Company contained in Section 1 of this Agreement are not
true and correct, (ii) is familiar with the Registration Statement and (iii) has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely affect the
business of the Company; and the sale of the Firm Securities and the Option
Securities by such Selling Stockholder pursuant hereto is not prompted by any
information concerning the Company which is not set forth in the Registration
Statement or the documents incorporated by reference therein.
(i) The information pertaining to such Selling Stockholder under the
caption "Principal and Selling Stockholders" in the Prospectus is complete
and accurate in all material respects.
Section 3. RESERVED.
Section 4. PURCHASE, SALE AND DELIVERY OF SECURITIES.
(a) Subject to the terms and conditions herein set forth, the
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Company agrees to issue and sell to the several Underwriters an aggregate of
765,000 Firm Securities, each Selling Stockholder agrees to sell to the several
Underwriters the number of Firm Securities set forth on Schedule II opposite the
name of such Selling Stockholder and each of the Underwriters agrees to purchase
from the Company and the Selling Stockholders, at a purchase price of
$__________ per share, the respective aggregate number of Firm Securities
determined in the manner set forth below. The obligation of each Underwriter to
the Company and each of the Selling Stockholders, respectively, shall be to
purchase that portion of the number of shares of Common Stock to be sold by the
Company or such Selling Stockholder pursuant to this Agreement as the number of
Firm Securities set forth opposite the name of such Underwriter on Schedule I
bears to the total number of Firm Securities to be purchased by the Underwriters
pursuant to this Agreement, in each case adjusted by you such that no
Underwriter shall be obligated to purchase Firm Securities other than in 100
share amounts. In making this Agreement, each Underwriter is contracting
severally and not jointly.
In addition, subject to the terms and conditions herein set forth, each Selling
Stockholder that is designated in Schedule II hereto as selling Option
Securities agrees to sell to the Underwriters the aggregate number of Option
Securities set forth opposite the name of such Selling Stockholder, in each case
as required by the Underwriters for the sole purpose of covering overallotments
in the sale of the Firm Securities, at the purchase price per share of the Firm
Securities being sold by the Selling Stockholders as stated in the preceding
paragraph. The right to purchase the Option Securities may be exercised by your
giving 48 hours' prior written or telephonic notice (subsequently confirmed in
writing) to the Custodian, on behalf of the Selling Stockholders, of your
determination to purchase all or a portion of the Option Securities. Such
notice may be given at any time within a period of 30 days following the date of
this Agreement. Option Securities shall be purchased severally for the account
of each Underwriter in proportion to the number of Firm Securities set forth
opposite the name of such Underwriter in Schedule I hereto, and, in the event
the Underwriters determine to purchase less than all of the Option Securities,
shall be purchased by the Underwriters from the Selling Stockholders in the
order of priority designated in Schedule II hereto. No Option Securities shall
be delivered to or for the accounts of the Underwriters unless the Firm
Securities shall be simultaneously delivered or shall theretofore have been
delivered as herein provided. The respective purchase obligations of each
Underwriter shall be adjusted by you so that no Underwriter shall be obligated
to purchase Option Securities other than in 100 share amounts.
(b) The Underwriters propose to offer the Securities for sale upon the
terms and conditions set forth in the Prospectus.
(c) Certificates in definitive form for the Firm Securities to be
purchased by each Underwriter hereunder shall be delivered to
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you for the account of such Underwriter, by or on behalf of the Company and the
Selling Stockholders obligated to do so, against payment by such Underwriter or
on its behalf of the purchase price therefor by certified or official bank check
or checks, payable in New York Clearing House funds, to the order of the
Company, for the purchase price of the Firm Securities being sold by the
Company, and to the order of the respective Selling Stockholder for the purchase
price of the Firm Securities being sold by such Selling Stockholder, at the
office of Schroder Wertheim & Co. Incorporated, Equitable Center, 787 Seventh
Avenue, New York, New York, at 9:30 A.M., New York City time, on May [__], 1996,
or at such other time, date and place as you and the Company may agree upon in
writing, such time and date being herein called the "Time of Delivery."
(d) Certificates in definitive form for the Option Securities to be
purchased by each Underwriter hereunder shall be delivered to you for the
account of such Underwriter, by or on behalf of the Selling Stockholders
obligated to do so, against payment by such Underwriter or on its behalf of the
purchase price therefor by certified or official bank check or checks, payable
in New York Clearing House funds, to the order of the respective Selling
Stockholder from whom Option Securities are being purchased or its designees
(which shall include, in the case of the Selling Stockholders that are natural
persons, the Company to the extent set forth in Section 2(d) hereof) for the
purchase price of the Option Securities being sold by such Selling Stockholder,
in New York, New York, at such time and on such date (not earlier than the Time
of Delivery nor later than ten business days after giving of the notice
delivered by you to the Custodian with reference thereto) and in such
denominations and registered in such names as shall be specified in the notice
delivered by you to the Custodian with respect to the purchase of such Option
Securities. The date and time of such delivery and payment are herein sometimes
referred to as the "Option Securities Delivery Date." The obligations of the
Underwriters shall be subject, in their discretion, to the condition that there
shall be delivered to the Underwriters on the Option Securities Delivery Date
opinions and certificates, dated such Option Securities Delivery Date, referring
to the Option Securities, instead of the Firm Securities, but otherwise to the
same effect as those required to be delivered at the Time of Delivery pursuant
to Sections 8(d), 8(e), 8(f), 8(g) and 8(j).
(e) Certificates for the Firm Securities and the Option Securities so to
be delivered will be in good delivery form, and in such denominations and
registered in such names as you may request not less than 48 hours prior to the
Time of Delivery and the Option Securities Delivery Date, respectively. Such
certificates will be made available for checking and packaging in New York, New
York, at least 24 hours prior to the Time of Delivery and the Option Securities
Delivery Date.
Section 5. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each of the Underwriters:
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(a) If the Registration Statement has not become effective, to file
promptly the Final Amendment with the Commission and use its reasonable best
efforts to cause the Registration Statement to become effective; if the
Registration Statement has become effective, to file promptly the Rule 430A
Prospectus with the Commission, to make no further amendment or any supplement
to the Registration Statement or Prospectus without your consent, which shall
not be unreasonably withheld; to advise you thereof, promptly after it receives
notice of (i) any communication from the Commission relating to the Registration
Statement, the Prospectus or any Preliminary Prospectus, or any notice or order
of the Commission relating to the Company or any of the Selling Stockholders in
connection with the transactions contemplated by this Agreement, (ii) the
happening of any event which makes or may make any statement made in the
Registration Statement, the Prospectus or any Preliminary Prospectus untrue or
that requires the making of any change in the Registration Statement, Prospectus
or Preliminary Prospectus, as the case may be, in order to make such statement,
in light of the circumstances in which it was made, not misleading, (iii) the
time when the Registration Statement, or any amendment thereto, or any amended
Registration Statement has become effective or any supplement to the Prospectus
or any amended Prospectus has been filed, (iv) the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, or the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, (v) the initiation
or threatening of any proceeding for any such purpose, or (vi) any request by
the Commission for the amending or supplementing of the Registration Statement
or Prospectus or for additional information; and in the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such qualification,
to use promptly its reasonable best efforts to obtain withdrawal of such order.
(b) Promptly from time to time to take such action as you may request to
qualify the Securities for offering and sale under the securities laws of such
jurisdictions as you may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution, provided that in connection
therewith the Company shall not be required to qualify as a foreign corporation,
to subject itself to taxation in any jurisdiction in which it is otherwise not
subject, or to file a general consent to service of process in any jurisdiction.
(c) To furnish to each of the Representatives and counsel for the
Underwriters, without charge, a signed copy of the registration statement
originally filed with respect to the Securities, including any filing made
electronically, and each amendment thereto (in each case including all exhibits
thereto) and to each other Underwriter, without charge, a conformed copy of such
registration statement and each amendment thereto (in each case
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without exhibits thereto) and, so long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of each
Preliminary Prospectus, the Prospectus and all amendments or supplements thereto
as you may from time to time reasonably request. If at any time when the
delivery of a prospectus is required under the Act an event shall have occurred
as a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered, not
misleading, or if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the Act, the Company will
forthwith prepare and, subject to the provisions of Section 5(a) hereof, file
with the Commission an appropriate supplement or amendment thereto, and will
furnish to each Underwriter and to any dealer in securities, without charge, as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus or make an appropriate filing under
Section 13, 14 or 15(d) of the Exchange Act which will correct such statement or
omission or effect such compliance in accordance with the requirements of
Section 10 of the Act.
(d) To make generally available to its stockholders as soon as
practicable, but in any event not later than 45 days after the close of the
period covered thereby, an earnings statement in form complying with the
provisions of Section 11(a) of the Act covering a period of 12 consecutive
months beginning not later than the first day of the Company's fiscal quarter
next following the Effective Date.
(e) To file promptly all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act subsequent to
the Effective Date and during any period when the Prospectus is required to be
delivered.
(f) For a period of three years from the Effective Date, to furnish to its
stockholders after the end of each fiscal year an annual report (including a
consolidated balance sheet and statements of income, cash flow and stockholders'
equity of the Company and its subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the Effective Date), consolidated summary financial information of the
Company and its subsidiaries for such quarter in reasonable detail.
(g) During a period of three years from the Effective Date, to furnish to
you copies of all reports or other communications (financial or other) furnished
to its stockholders, and deliver to you (i) as soon as they are available,
copies of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of securities
of the Company is listed; and (ii) such additional information
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concerning the business and financial condition of the Company as you may from
time to time reasonably request in connection with your obligations hereunder.
(h) To apply the net proceeds from the sale of the Securities in the
manner set forth in the Prospectus under the caption "Use of Proceeds".
(i) That it will not, and will cause the Subsidiary and their respective
officers, directors, employees, agents and affiliates not to, take, directly or
indirectly, any action designed to cause or result in, or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities.
(j) That prior to the Time of Delivery there will not be any change in the
capital stock or material change in the short-term debt or long-term debt of the
Company or the Subsidiary, other than repayments made in the ordinary course of
business, and that no steps will be taken by or on behalf of the Company that
would result in any material adverse change, or any development that could
reasonably be expected to have a material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company or any of its subsidiaries.
(k) That it will not, during the period of 180 days after the date hereof
(other than pursuant to this Agreement), offer, sell, contract to sell or
otherwise dispose of any capital stock of the Company (or securities convertible
into, or exchangeable for, capital stock of the Company), directly or
indirectly, without the prior written consent of the Representatives, except for
grants of stock options under the Company's 1990 and 1994 Long-Term Incentive
Stock Plans.
(l) That it has caused the Securities to be eligible for quotation on the
Nasdaq National Market as of the Effective Date.
Section 6. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling
Stockholder, severally and not jointly, covenants and agrees with each of the
Underwriters that:
(a) If such Selling Stockholder is obligated to sell Firm Securities, such
Selling Stockholder will not, during the period of 180 days after the date
hereof, except pursuant to this Agreement or except to a Permitted Affiliate (as
defined below) of such Selling Stockholder, offer, sell, contract to sell, or
otherwise dispose of any capital stock of the Company (or securities convertible
into, or exchangeable for, capital stock of the Company), directly or
indirectly, without the prior written consent of the Representatives. If such
Selling Stockholder is or may be obligated to sell only Option Securities (and
not any Firm
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Securities), such Selling Stockholder will not, during the period of 120 days
after the date hereof, except pursuant to this Agreement or except to a
Permitted Affiliate of such Selling Stockholder, offer, sell, contract to sell,
or otherwise dispose of any capital stock of the Company (or securities
convertible into, or exchangeable for, capital stock of the Company or
securities issuable upon the conversion or exercise thereof), directly or
indirectly, without the prior written consent of the Representatives, other than
the exercise (but not sale) of stock options under the Company's 1990 and 1994
Long-Term Incentive Stock Plans. For purposes of this Agreement, "Permitted
Affiliate" of any person shall mean (i) any "affiliate" of such person (within
the meaning of Rule 405 under the Securities Act) or (ii) any "Permitted
Transferee" (as defined in Section 4.3(b) of the Company's Restated Certificate
of Incorporation on the date hereof), that, in each case, has executed an
agreement, in a form reasonably satisfactory to the Representatives, to be
bound, to the same extent applicable to such person, to the transfer
restrictions imposed by this Agreement.
(b) Such Selling Stockholder will not, directly or indirectly, take any
action designed to cause or result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities.
(c) As soon as any Selling Stockholder has knowledge thereof, such Selling
Stockholder will advise the Representatives and confirm such advice in writing,
(i) of receipt by the Selling Stockholder or by any representative or agent of
such Selling Stockholder, of any communication from the Commission relating to
the Registration Statement, the Prospectus or any Preliminary Prospectus, or any
notice or order of the Commission relating to the Company or any of the Selling
Stockholders in connection with the transactions contemplated by this Agreement
and (ii) of the happening of any event which makes or may make any statement
made in the Registration Statement, the Prospectus or any Preliminary Prospectus
untrue or requires the making of any change in the Registration Statement,
Prospectus or Preliminary Prospectus, as the case may be, in order to make such
statement, in light of the circumstances in which it was made, not misleading.
(d) Such Selling Stockholder will deliver to the Representatives prior to
the Time of Delivery a properly completed and executed United States Treasury
Department Form W-8 or W-9, as applicable.
(e) All stock transfer or other taxes (other than income taxes) which are
required to be paid in connection with the sale and transfer of the Securities
to be sold by such Selling Stockholder to the several Underwriters hereunder
will be paid or provided for by such Selling Stockholder.
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Section 7. PAYMENT OF EXPENSES. The Company covenants and agrees with the
several Underwriters that the Company will pay or cause to be paid: (i) the
fees, disbursements and expenses of counsel and accountants for the Company and
the Selling Stockholders, and all other expenses, in connection with the
preparation, printing and filing of the Registration Statement and the
Prospectus and amendments and supplements thereto and the furnishing of copies
thereof, including charges for mailing, air freight and delivery and counting
and packaging thereof and of any Preliminary Prospectus and related offering
documents to the Underwriters and dealers; (ii) the cost of printing this
Agreement, the Agreement Among Underwriters, the Selling Agreement,
communications with the Underwriters and selling group and the Preliminary and
Supplemental Blue Sky Memoranda and any other documents in connection with the
offering, purchase, sale and delivery of the Securities; (iii) all expenses in
connection with the qualification of the Securities for offering and sale under
securities laws as provided in Section 5(b) hereof, including filing and
registration fees and the reasonable fees, disbursements and expenses for
counsel for the Underwriters in connection with such qualification and in
connection with Blue Sky surveys or similar advice with respect to sales; (iv)
the filing fees incident to, and the reasonable fees and disbursements of
counsel for the Underwriters in connection with, securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale of
the Securities; (v) all fees and expenses in connection with listing or having
the Securities quoted on the Nasdaq National Market; and (vi) all other costs
and expenses incident to the performance of their obligations hereunder which
are not otherwise specifically provided for in this Section 7, including the
fees of the Company's Transfer Agent and Registrar, the cost of any stock issue
or transfer taxes on sale of the Securities to the Underwriters, the cost of the
Company's personnel and other internal costs, the cost of printing and engraving
the certificates representing the Securities and all expenses and taxes incident
to the sale and delivery of the Securities to be sold by the Company and the
Selling Stockholders to the Underwriters hereunder. Each Selling Stockholder
will pay any transfer taxes incident to the transfer to the Underwriters of the
Securities being sold by such Selling Stockholder.
It is understood, however, that, except as provided in this Section,
Section 9 and Section 12 hereof, the Underwriters will pay all their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Securities by them, and any advertising expenses connected
with any offers they may make.
Section 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the Underwriters hereunder shall be subject, in their
discretion, to the condition that all representations and warranties and
other statements of the Company and the Selling Stockholders herein are, at
and as of the Time of Delivery, true and correct, the condition that the
Company and the Selling
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Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Registration Statement shall have become effective, and you shall
have received notice thereof not later than 10:00 P.M., New York City time, on
the date of execution of this Agreement, or at such other time as you and the
Company may agree; if required, the Prospectus shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b); no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction.
(b) All corporate proceedings and related legal and other matters in
connection with the organization of the Company and the registration,
authorization, issue, sale and delivery of the Securities shall have been
reasonably satisfactory to Willkie Farr & Gallagher, counsel to the
Underwriters, and Willkie Farr & Gallagher shall have been timely furnished with
such papers and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this subsection.
(c) You shall not have advised the Company or any Selling Stockholder that
the Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact or omits to state a fact which in
your judgment is in either case material and in the case of an omission is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Company,
shall have furnished to you their written opinion, dated the Time of Delivery,
in form and substance satisfactory to you and Willkie Farr & Gallagher,
substantially to the effect that:
(1) Each of the Company and the Subsidiary has been duly and validly
incorporated and validly existing as a corporation in good standing under the
laws of the State of Delaware, and is qualified to do business and is in good
standing in each state in which the Company and/or the Subsidiary owns or
operates ten or more stores; and each of the Company and the Subsidiary has all
necessary corporate power and all material governmental authorizations, permits
and approvals required to own, lease and operate its properties and assets and
conduct its business as described in the Prospectus.
(2) All the outstanding shares of capital stock of the Subsidiary
have been duly authorized and are validly issued and outstanding, are fully paid
and non-assessable and are owned by the
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Company of record and to the knowledge of such counsel, (A) beneficially and (B)
free and clear of all liens, encumbrances, security interests or claims of any
nature whatsoever; PROVIDED, HOWEVER, that no opinion need be expressed by such
counsel as to the existence of any liens, encumbrances or security interests not
known by such counsel which may be perfected pursuant to the provisions of
Section 8-321(2) of the Uniform Commercial Code in effect in the State of New
York (the "UCC"); and neither the Company nor the Subsidiary has granted any
outstanding options, warrants or commitments with respect to any shares of the
Subsidiary's capital stock, whether issued or unissued.
(3) The Company has an authorized equity capitalization as set forth
in the Registration Statement and all the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable and free of any preemptive rights from the Company and, to the
knowledge of such counsel, were not issued or sold in violation of any
preemptive rights or any Federal or state securities laws; except as described
in the Prospectus, to the best knowledge of such counsel, there are no
outstanding options, warrants or other rights calling for (or permitting a call
for) the issuance of, and there are no commitments, plans or arrangements to
issue, any shares of capital stock of the Company; the Securities being sold by
the Company have been duly and validly authorized and, when duly countersigned
by the Company's Transfer Agent and Registrar and issued, delivered and paid for
in accordance with the provisions of the Registration Statement and this
Agreement, will be duly and validly issued, fully paid and non-assessable, and
will be issued free and clear of all liens, encumbrances, security interests,
voting trust arrangements, claims or other defects created by or on behalf of
the Company and, assuming (in the case of liens, encumbrances, security
interests and claims only) the Underwriters acquire the Securities without
notice of any such adverse claim, as such term is used in Section 8-302 of the
UCC, by any person, law, statute or order; provided, however, that no opinion
need be expressed by such counsel as to the existence of any liens,
encumbrances or security interests not known by such counsel which may be
perfected pursuant to the provisions of Section 8-321(2) of the UCC; the
Securities conform to the description thereof in the Prospectus; the Securities
have been duly authorized for quotation on the Nasdaq National Market, as of
the Effective Date; and the certificates for the Securities are in valid and
sufficient form.
(4) To the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or the
Subsidiary or any of their respective officers or directors is a party or of
which any property or assets of the Company or the Subsidiary is the subject
which, if resolved against the Company or the Subsidiary or any of their
respective officers or directors, individually, or to the extent involving
related claims or issues, in the aggregate, is of a character required to be
disclosed in the Prospectus which has not been properly disclosed therein.
(5) This Agreement has been duly authorized, executed and delivered
by the Company and is a legal, valid and binding
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agreement of the Company enforceable in accordance with its terms, except as
enforceability of the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and except as enforceability of those provisions relating to indemnity
or contribution may be limited by the Federal securities laws and principles of
public policy.
(6) The Company has full corporate power and authority to execute,
deliver and perform this Agreement, and the execution, delivery and performance
of this Agreement, the consummation of the transactions herein contemplated and
the issue and sale of the Securities and the compliance by the Company with all
the provisions of this Agreement will not conflict with, or result in a breach
of any of the terms or provisions of, or constitute a default under, or result
in the creation or imposition of any Lien upon, any of the property or assets of
the Company or the Subsidiary pursuant to, the terms of any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument of any nature
whatsoever known to such counsel to which the Company or the Subsidiary is a
party or by which the Company or the Subsidiary is bound or to which any of the
property or assets of the Company or the Subsidiary is subject, except for such
conflicts, breaches, violations, defaults or Liens that would not, individually
or in the aggregate, have a Material Adverse Effect or adversely affect the
consummation of the transactions contemplated hereby; nor will such action
result in any violation of any statute or any order, rule or regulation,
judgment or decree known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or the Subsidiary or any of their
properties or assets, except for any violations of any statute, order, rule,
regulation, judgment or decree that would not, individually or in the aggregate,
have a Material Adverse Effect or adversely affect the consummation of the
transactions contemplated hereby; nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws, in each case
as amended to the date hereof, of the Company or the Subsidiary.
(7) No consent, approval, authorization, order, registration or
qualification of or with any New York, California or federal court or any New
York, California or federal regulatory authority or other governmental body is
required for the issue and sale of the Securities or the consummation of the
other transactions contemplated by this Agreement, except such as have been
obtained under the Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase and distribution of
the Securities by the Underwriters.
(8) To the best of such counsel's knowledge, neither the Company nor
the Subsidiary is currently in violation of its Certificate of Incorporation or
By-laws, in each case as amended to the date hereof, or in default under any
indenture, mortgage, deed
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of trust, lease, bank loan or credit agreement or any other agreement or
instrument of any nature whatsoever of which such counsel has knowledge to which
the Company or the Subsidiary is a party or by which any of them or any of their
property or assets may be bound or affected, except for such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
(9) There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any Securities
pursuant to the Company's Certificate of Incorporation or By-laws, in each case
as amended to the date hereof, or any agreement or other instrument known to
such counsel; and no holders of securities of the Company have rights to the
registration thereof under the Registration Statement, or otherwise to have
registered pursuant to the Act or, if any such holders have such rights, such
holders have waived such rights.
(10) To the extent summarized therein, all contracts and agreements
summarized in the Registration Statement and the Prospectus are fairly
summarized therein, conform in all material respects to the descriptions thereof
contained therein, and, to the extent such contracts or agreements or any other
material agreements are required under the Act or the rules and regulations
thereunder to be filed or incorporated by reference therein, as exhibits to the
Registration Statement, they are so filed or incorporated by reference; and such
counsel does not know of any contracts or other documents required to be
summarized or disclosed in the Prospectus or to be so filed or incorporated by
reference as an exhibit to the Registration Statement, which have not been so
summarized or disclosed, or so filed or incorporated by reference.
(11) The Registration Statement has become effective under the Act,
the Prospectus has been filed in accordance with Rule 424(b) of the rules and
regulations of the Commission under the Act, including the applicable time
periods set forth therein, or such filing is not required and, to the best
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Act, and the Registration
Statement, the Prospectus and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the rules and regulations
thereunder; the documents incorporated by reference in the Prospectus comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission thereunder; it being understood that
such counsel need express no opinion as to the financial statements and
schedules or other financial data contained or incorporated by reference in the
Registration Statement or the Prospectus; and the condition for use of Form S-3
set forth in the General Instructions thereto have been satisfied.
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Such counsel shall also state that nothing has come to such counsel's
attention that would lead such counsel to believe that either the Registration
Statement or any amendment or supplement thereto, at the time such Registration
Statement or amendment or supplement became effective and as of the Time of
Delivery, or the Prospectus or any amendment or supplement thereto, as of its
date and as of the Time of Delivery, contains or contained any untrue statement
of a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that such
counsel need not express an opinion or belief with respect to information
contained in the financial statements and the related notes thereto, schedules
and other financial accounting and statistical data included therein or
incorporated by reference.
In rendering their opinions set forth in Section 8(d) above, such counsel
may rely, to the extent deemed advisable by such counsel, (a) as to factual
matters, upon certificates of public officials and officers of the Company, and
(b) as to the laws of any jurisdiction other than the United States and
jurisdictions in which they are admitted, on opinions of counsel (provided,
however, that you shall have received a copy of each of such opinions which
shall be dated the Time of Delivery, addressed to you or otherwise authorizing
you to rely thereon, and Akin, Gump, Strauss, Hauer & Feld, L.L.P., in its
opinion to you delivered pursuant to this subsection, shall state that such
counsel are satisfactory to them and Akin, Gump, Strauss, Hauer & Feld, L.L.P.
has no reason to believe that the Underwriters and they are not justified to so
rely).
(e) With respect to each of the Selling Stockholders, Goodman Phillips &
Vineberg, counsel for the Selling Stockholders, shall have furnished to you
their written opinion, dated the Time of Delivery, in form and substance
satisfactory to you and to Willkie Farr & Gallagher, substantially to the effect
that:
(1) Each Selling Stockholder that is not a natural person has full
corporate power and authority to enter into this Agreement and to sell, transfer
and deliver the Securities being sold by such Selling Stockholder hereunder in
the manner provided in this Agreement and to perform its obligations under this
Agreement; the execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action of each Selling Stockholder
that is not a natural person; this Agreement has been duly executed and
delivered by or on behalf of each Selling Stockholder; this Agreement is a
legal, valid and binding obligations of each Selling Stockholder that is not a
natural person, enforceable against such Selling Stockholder in accordance with
its terms, except as enforcement of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in
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equity or at law) and limitations on rights to indemnity or contribution
resulting from federal or state securities laws or the public policy underlying
such laws.
(2) Upon delivery of and payment for the Securities being sold by
each Selling Stockholder that is not a natural person against payment of the
agreed consideration therefore in accordance with the provisions of this
Agreement, the several Underwriters will receive good and valid title to such
Securities, free and clear of all liens, encumbrances, security interests,
voting trust arrangements, claims or other defects known to such counsel through
a search of the Central Registry (Province of Quebec) on the Index to Personal
Moveable Real Rights pursuant to the Civil Code of Quebec.
(3) To the best of such counsel's knowledge, with respect to each
Selling Stockholder that is not a natural person, the sale of the Securities to
the Underwriters by such Selling Stockholder pursuant to this Agreement, the
compliance by such Selling Stockholder with the other provisions of this
Agreement, and the consummation of the other transactions herein contemplated do
not (i) conflict with, or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge, claim or encumbrance on any property or assets
of such Selling Stockholder under, any indenture, mortgage, deed of trust, lease
or other agreement or instrument of any nature whatsoever to which any such
Selling Stockholder is a party or by which any such Selling Stockholder or any
of such Selling Stockholder's property or assets is bound, or the charter
documents or By-laws of any such Selling Stockholder or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to any such Selling Stockholder, or (ii)
require the consent, approval, authorization, order, registration or
qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state or foreign securities or Blue
Sky laws.
(4) The Voting Trust Agreement, made as of August 9, 1995 (the
"Voting Trust Agreement"), by and among 2927977 Canada Inc., Gross-Teitelbaum
Holdings Inc., Suzy Shier Inc., Los Angeles Express Fashions Inc., Maryse
Bertrand and Suzy Shier Limited, has been terminated effective as of the Time of
Delivery; all approvals and consents required under the Voting Trust Agreement
in connection with the sale of the Securities contemplated hereby have been
obtained; no party to the Voting Trust Agreement has any right of first refusal
or other right to purchase the Securities who has not waived such right; and at
the Time of Delivery, none of the Securities will be subject to any of the
provisions of the Voting Trust Agreement.
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In rendering such opinion, such counsel may rely, to the extent deemed
advisable by such counsel, (a) as to factual matters, upon certificates of
public officials and the Selling Stockholders, and (b) on the opinions of
counsel (PROVIDED, HOWEVER, that you shall have received a copy of each of such
opinions which shall be dated the Time of Delivery, addressed to you or
otherwise authorizing you to rely thereon; and Goodman Phillips & Vineberg in
its opinion to you delivered pursuant to this subsection, shall state that such
counsel are satisfactory to them and they have no reason to believe that the
Underwriters and they are not justified to so rely).
(f) Willkie Farr & Gallagher, counsel to the Underwriters, shall have
furnished to you their written opinion or opinions, dated the Time of Delivery,
in form and substance satisfactory to you, with respect to the incorporation of
the Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters.
(g) At the time this Agreement is executed and also at the Time of
Delivery, Deloitte & Touche, LLP shall have furnished to you a letter or
letters, dated the date of this Agreement and the Time of Delivery,
substantially in the form attached as EXHIBIT C hereto.
(h) Neither the Company nor the Subsidiary shall have sustained since the
date of the latest audited financial statements included or incorporated by
reference in the Prospectus, any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree; and
since the respective dates as of which information is given in the Prospectus,
there shall not have been any change in the capital stock (other than shares
issued pursuant to the exercise of Employee Option Shares) or short-term debt or
long-term debt of the Company or the Subsidiary nor any change or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company or the Subsidiary, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case, in the reasonable
judgment of the Representatives, makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities on the terms
and in the manner contemplated in the Prospectus.
(i) Between the date hereof and the Time of Delivery there shall have been
no declaration of war by the Government of the United States; at the Time of
Delivery there shall not have occurred any material adverse change in the
financial or securities markets in the United States or in political, financial
or economic conditions in the United States or any outbreak or material
escalation of hostilities or other calamity or crisis, the effect
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of which is such as to make it, in the reasonable judgment of the
Representatives, impracticable to market the Securities or to enforce contracts
for the resale of Securities and no event shall have occurred resulting in (i)
trading in securities generally on the New York Stock Exchange or in the Class A
Common Stock on the Nasdaq National Market being suspended or limited or minimum
or maximum prices being generally established on such exchanges or market, or
(ii) additional material governmental restrictions, not in force on the date of
this Agreement, being imposed upon trading in securities generally by the New
York Stock Exchange or in the Class A Common Stock on the Nasdaq National Market
or by order of the Commission or any court or other governmental authority, or
(iii) a general banking moratorium being declared by either Federal or New York
authorities.
(j) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at the Time of Delivery certificates signed by the
chief executive officer and the chief financial officer, on behalf of the
Company, and by each Selling Stockholder, or the Attorney in Fact on behalf of
each Selling Stockholder, satisfactory to you as to such matters as you may
reasonably request and stating that (A) they have carefully examined the
Registration Statement and Prospectus, (B) the representations and warranties of
such persons herein at and as of the Time of Delivery are true and correct in
all material respects (or ALL respects in those cases where the representation
and warranty references a concept of materiality) and (C) they have performed
all of its or their respective obligations hereunder to be performed at or prior
to the Time of Delivery.
(k) Each director and officer of the Company who is not a party to this
Agreement and Los Angeles Express Fashions, Inc. shall have delivered to you an
agreement in the form provided by the Underwriters not to offer, sell, contract
to sell or otherwise dispose of any shares of capital stock of the Company (or
securities convertible into, or exchangeable for, capital stock of the Company
or securities issuable upon the conversion or exercise thereof), directly or
indirectly, for a period of 120 days (180 days in the case of Los Angeles
Express Fashions, Inc.) after the date of this Agreement, without the prior
written consent of the Representatives, except to a Permitted Affiliate of such
person or by virtue of the exercise (but not sale) of stock options granted
under the Company's 1990 and 1994 Long-Term Incentive Stock Plans.
(l) The Company shall have delivered to you evidence that the Securities
have been authorized for quotation on the Nasdaq National Market as of the
Effective Date.
Section 9. INDEMNIFICATION. (a) The Company will indemnify and hold
harmless each Underwriter against any losses, claims, damages or liabilities,
joint or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
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alleged untrue statement of a material fact contained or incorporated by
reference in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements made or incorporated by reference therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
incurred by such Underwriter in connection with investigating, preparing to
defend, defending or appearing as a third-party witness in connection with any
such action or claim; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission relating to an Underwriter made in any
Preliminary Prospectus, the Registration Statement, the Prospectus or such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through you expressly
for use therein; PROVIDED, FURTHER, that the foregoing indemnity with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Securities, or any person controlling such Underwriter, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was then made available to the
Underwriters but was not sent or given by or on behalf of such Underwriter to
such person, if required by law to have been delivered, at or prior to the
written confirmation of the sale of Securities to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities.
(b) Each Selling Stockholder, severally and not jointly, will indemnify
and hold harmless each Underwriter, the Company and the other Selling
Stockholders against any losses, claims, damages or liabilities to which such
Underwriter, the Company or such Selling Stockholder may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained or
incorporated by reference in the Preliminary Prospectus, the Registration
Statement, or the Prospectus, or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements made or incorporated by
reference therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Preliminary Prospectus, the Registration
Statement, the Prospectus or such amendment or supplement in reliance upon
and in conformity with information furnished to such Underwriter or the
Company by such Selling Stockholder expressly for use therein, or (ii) in the
case of Gross-Teitelbaum Holdings Inc. and 2927977 Canada Inc. only, any
untrue statement or alleged untrue statement made by such Selling Stockholder
in Section 2(h) of this Agreement, and, in each case, will reimburse such
Underwriter, the Company or such Selling Stockholder for any legal or other
expenses incurred by such Underwriter, the Company or such Selling Stockholder
in connection with investigating, preparing to defend, defending or appearing
as a third-party witness in connection with any such action or claim; PROVIDED,
HOWEVER, that the Selling Stockholders shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission relating to an Underwriter made in any Preliminary Prospectus,
the Registration Statement, the Prospectus or such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through
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you expressly for use therein; PROVIDED, FURTHER, that the foregoing indemnity
with respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Securities, or any person controlling such Underwriter, if
a copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was then made available to
the Underwriters but was not sent or given by or on behalf of such Underwriter
to such person, if required by law to have been delivered, at or prior to the
written confirmation of the sale of Securities to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such losses, claims, damages or liabilities.
(c) In addition to any obligations of the Company and each of the Selling
Stockholders under Section 9(a) and 9(b), respectively, the Company and each of
the Selling Stockholders agree that they shall perform their indemnification
obligations under Section 9(a) and Section 9(b), respectively (as modified by
the last paragraph of this Section 9(c)), with respect to counsel fees and
expenses and other expenses incurred by making payments within 45 days to the
Underwriter in the amount of the statements of the Underwriter's counsel or
other statements which shall be forwarded by the Underwriter, and that it shall
make such payments notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the obligation to reimburse the Underwriters
for such expenses and the possibility that such payments might later be held to
have been improper by a court until such time as a court orders return of such
payments.
The indemnity agreement in Section 9(a) and Section 9(b) shall be in
addition to any liability which the Company or any of the Selling Stockholders
may otherwise have and shall extend upon the same terms and conditions to each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act.
(d) Each Underwriter will indemnify and hold harmless the Company and the
Selling Stockholders against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in any Preliminary Prospectus, the Registration
Statement, the Prospectus or such amendment or supplement in reliance upon and
in conformity with written information furnished to the Company or such Selling
Stockholder by such Underwriter relating to such Underwriter
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<PAGE>
through you expressly for use therein, and will reimburse the Company or such
Selling Stockholder for any legal or other expenses reasonably incurred by the
Company or such Selling Stockholder in connection with investigating or
defending any such action or claim.
The indemnity agreement in this Section 9(d) shall be in addition to any
liability which the respective Underwriters may otherwise have and shall extend,
upon the same terms and conditions, to each officer and director of the Company
or of any Selling Stockholder and to each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act.
(e) Promptly after receipt by an indemnified party under Section 9(a),
9(b) or 9(d) of notice of the commencement of any action (including any
governmental investigation), such indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party under Section 9(a), 9(b) or
9(d) except to the extent it was unaware of such action and has been prejudiced
in any material respect by such failure or from any liability which it may have
to any indemnified party otherwise than under such Section 9(a), 9(b) or 9(d).
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. If, however, (i) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party or (ii) an indemnified party shall have reasonably concluded
that representation of such indemnified party and the indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them and the
indemnified party so notifies the indemnifying party, then the indemnified party
shall be entitled to employ counsel different from counsel for the indemnifying
party at the expense of the indemnifying party and the indemnifying party shall
not have the right to assume the defense of such indemnified party. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to local counsel) for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out
30
<PAGE>
of the same set of allegations or circumstances. The counsel with respect to
which fees and expenses shall be so reimbursed shall be designated in writing by
Schroder Wertheim & Co. Incorporated in the case of parties indemnified pursuant
to Section 9(a) and Section 9(b) and by the Company in the case of parties
indemnified pursuant to Section 9(d).
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened proceeding
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(f) In order to provide for just and equitable contribution under the Act
in any case in which (i) any Underwriter (or any person who controls any
Underwriter within the meaning of the Act or the Exchange Act) makes claim for
indemnification pursuant to Section 9(a) or Section 9(b) hereof, but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 9(a) or Section 9(b) provides for
indemnification in such case or (ii) contribution under the Act may be required
on the part of any Underwriter or any such controlling person in circumstances
for which indemnification is provided under Section 9(d), then, and in each such
case, each indemnifying party shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject as an indemnifying party
hereunder (after contribution from others) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other from the offering
of the Securities. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under Section 9(e) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Securities purchased under this Agreement (before deducting expenses)
received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Securities purchased under this
31
<PAGE>
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 9(f)
were determined by PRO RATA allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
Section 9(f). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 9(f) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9(f), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 9(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Promptly after receipt by any party to this Agreement of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
"contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party for contribution
under the Act except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any liability which
it may have to any other party other than for contribution under the Act. In
case any such action, suit or proceeding is brought against any party, and such
party notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified.
Section 10. DEFAULT OF UNDERWRITERS. (a) If any Underwriter shall
default in its obligation to purchase the Firm Securities which it has agreed to
purchase hereunder, you may in your
32
<PAGE>
discretion arrange for you or another party or other parties to purchase such
Firm Securities on the terms contained herein. If the aggregate number of Firm
Securities as to which Underwriters default is more than one-eleventh of the
aggregate number of all the Firm Securities and within 36 hours after such
default by any Underwriter you do not arrange for the purchase of such Firm
Securities, then the Company and the Selling Stockholders shall be entitled to a
further period of 36 hours within which to procure another party or other
parties satisfactory to you to purchase such Firm Securities on such terms. In
the event that, within the respective prescribed periods, you notify the Company
and the Selling Stockholders that you have so arranged for the purchase of such
Firm Securities, or the Company and the Selling Stockholders notify you that
they have so arranged for the purchase of such Firm Securities, you or the
Company shall have the right to postpone the Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your
reasonable opinion may thereby be made necessary. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Firm Securities.
(b) If, after giving effect to any arrangements for the purchase of the
Firm Securities of such defaulting Underwriter or Underwriters by you or the
Company and the Selling Stockholders or both as provided in subsection (a)
above, the aggregate number of such Firm Securities which remain unpurchased
does not exceed one-eleventh of the aggregate number of all the Firm Securities,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of the Firm Securities
which such Underwriter agreed to purchase hereunder and, in addition, to require
each non-defaulting Underwriter to purchase its pro rata share (based on the
number of Firm Securities which such Underwriter agreed to purchase hereunder)
of the Firm Securities of such defaulting Underwriter or Underwriters for which
such arrangements have not been made, but nothing shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Firm Securities of a defaulting Underwriter or Underwriters by you or the
Company and the Selling Stockholders as provided in subsection (a) above, the
aggregate number of such Firm Securities which remain unpurchased exceeds one-
eleventh of the aggregate number of all the Firm Securities, or if the Company
and the Selling Stockholders shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase Firm
Securities of a defaulting Underwriter or Underwriters, then this Agreement
shall thereupon terminate without
33
<PAGE>
liability on the part of any non-defaulting Underwriter, the Company or any
Selling Stockholder, except for the expenses to be borne by the Company and the
Selling Stockholders and the Underwriters as provided in Section 7 hereof and
the indemnity agreement in Section 9 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
Section 11. SURVIVAL. The respective indemnities, agreements,
representations, warranties and other statements of the Company, each of the
Selling Stockholders and the several Underwriters, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or an officer or director or controlling person of the Company, or any of the
Selling Stockholders, or any controlling person of any of the Selling
Stockholders, and shall survive delivery of and payment for the Securities.
Section 12. EFFECTIVE DATE; TERMINATION. This Agreement shall become
effective (a) if the Registration Statement has not heretofore become effective,
at the earlier of 12:00 Noon, New York City time, on the first full business day
after the Registration Statement becomes effective, or at such time after the
Registration Statement becomes effective as you may authorize the sale of the
Securities to the public by Underwriters or other securities dealers, or (b) if
the Registration Statement has heretofore become effective, at the earlier of 24
hours after the filing of the Prospectus with the Commission or at such time as
you may authorize the sale of the Securities to the public by Underwriters or
securities dealers, unless, prior to any such time you shall have received
notice from the Company that it elects that this Agreement shall not become
effective, or you, or through you such of the Underwriters as have agreed to
purchase in the aggregate fifty percent or more of the Firm Securities
hereunder, shall have given notice to the Company that you or such Underwriters
elect that this Agreement shall not become effective; provided, however, that
the provisions of this Section and Section 7 and Section 9 hereof shall at all
times be effective.
If this Agreement shall be terminated pursuant to Section 10 hereof, or if
this Agreement, by election of you or the Underwriters, shall not become
effective pursuant to the provisions of this Section, the Company and the
Selling Stockholders shall not then be under any liability to any Underwriter
except as provided in Section 7 and Section 9 hereof, but if this Agreement
becomes effective and is not so terminated but the Securities are not delivered
by or on behalf of the Company or any of the Selling Stockholders as provided
herein because the Company or any of the Selling Stockholders has been unable
for any reason beyond its control and not due to any default by it to comply
with the terms and conditions hereof, the Company will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
34
<PAGE>
you, including fees and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and delivery of the
Securities, but the Company and the Selling Stockholders shall then be under no
further liability to any Underwriter except as provided in Section 7 and Section
9 hereof.
Section 13. INFORMATION SUPPLIED BY UNDERWRITERS. The statements set
forth in the last paragraph on the front cover page of the Preliminary
Prospectus and Prospectus, the paragraph on the inside front cover of the
Preliminary Prospectus and Prospectus containing stabilization language and the
second and last paragraphs under the caption "Underwriting" in the Preliminary
Prospectus and Prospectus constitute the only information furnished by any
Underwriter through the Representatives to the Company for purposes of
Sections 1(b), 1(c) and 9 hereof.
Section 14. NOTICES. In all dealings hereunder, you shall act on behalf
of each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by Schroder Wertheim & Co.
Incorporated on behalf of you as the Representatives, and in all dealings with
the Selling Stockholders hereunder, you and the Company shall be entitled to act
and rely upon any statement, request, notice or agreement furnished in writing
by or on behalf of such Selling Stockholder or made or given by the Attorney-in-
Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder, unless
otherwise specified in this Agreement, shall be in writing and, if to the
Underwriters, shall be delivered or sent by mail, telex or facsimile
transmission (subsequently confirmed by delivery or by letter sent by mail) to
you as the Representatives in care of Schroder Wertheim & Co. Incorporated,
Equitable Center, 787 Seventh Avenue, New York, New York 10019, Attention:
Syndicate Department; and if to the Company or the Selling Stockholders, shall
be delivered or sent by letter sent by mail, telex or facsimile transmission
(subsequently confirmed by delivery or by letter sent by mail) to the address of
the Company set forth in the Registration Statement, Attention: Edmond S.
Thomas; PROVIDED, HOWEVER, that any notice to any Underwriter pursuant to
Section 9(d) hereof shall be delivered or sent by mail, telex or facsimile
transmission (subsequently confirmed by delivery or by letter sent by mail) to
such Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
Section 15. SUCCESSORS. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company and each of the Selling
Stockholders and, to the extent provided in Section 9 and Section 11 hereof, the
officers and
35
<PAGE>
directors of the Company and each person who controls the Company, any Selling
Stockholder or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
Section 16. TIME OF THE ESSENCE. Time shall be of the essence of this
Agreement. As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
SECTION 17. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 18. PARTIAL UNENFORCEABILITY; PRONOUNS. The invalidity or
unenforceability of any Section, subsection, paragraph or provisions of this
Agreement shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, subsection, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable. Each
pronoun used herein whether masculine, feminine or neuter shall be deemed to be
the appropriate gender to match its antecedent.
Section 19. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument. If the foregoing is in accordance with your
understanding, please sign and return to us two counterparts hereof, and upon
the acceptance hereof by you, on behalf of each of the Underwriters, this letter
and such acceptance hereof shall constitute a binding agreement among each of
the Underwriters, the Company and each of the Selling Stockholders. It is
understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement Among
Underwriters, manually or facsimile executed counterparts of which, to the
extent practicable and upon request, shall be submitted to the Company for
examination, but without warranty on your part as to the authority of the
signers thereof.
[Signature pages follow.]
36
<PAGE>
Very truly yours,
THE WET SEAL, INC.
By:___________________________
Name:
Title:
SELLING STOCKHOLDERS
By:___________________________
As authorized officer of or Attorney-in-
Fact for each of the Selling Stockholders
listed in Schedule II
Accepted as of the date hereof:
SCHRODER WERTHEIM & CO. INCORPORATED
MONTGOMERY SECURITIES
as Representatives of the several Underwriters
By: SCHRODER WERTHEIM & CO. INCORPORATED
By:_______________________
Managing Director
37
<PAGE>
SCHEDULE I
UNDERWRITER NUMBER OF FIRM
----------- SECURITIES
----------
Schroder Wertheim & Co.
Incorporated.............................
Montgomery Securities.......................
__________
Total....................................... 3,100,000
<PAGE>
SCHEDULE II
Number of Firm Number of Option
Selling Stockholder Securities to be Sold Securities to be
------------------- --------------------- Sold
----
1. Kathy Bronstein. . . . . . . 0 80,000
2. Edmond S. Thomas . . . . . . 0 70,000
3. Suzy Shier Inc.. . . . . . . 1,167,500 157,500
4. Gross-Teitelbaum Holdings
Inc. . . . . . . . . . . . . 378,227 0
5. 2927977 Canada Inc.. . . . . 789,273 157,500
--------- -------
Total. . . . . . . . . . . . . . 2,335,000 465,000
--------- -------
--------- -------
1. Option Securities shall be purchased by the Underwriters from each of the
Selling Stockholders designated above as selling Option Securities in the order
in which each such Selling Stockholder's name appears in the above table.
<PAGE>
THIS AGREEMENT MADE AS OF THE 15TH DAY OF MAY, 1996.
BY AND AMONG: 2927977 CANADA INC.
AND: GROSS-TEITELBAUM HOLDINGS INC.
(2927977 Canada Inc. and Gross-Teitelbaum Holdings
Inc. are hereinafter sometimes collectively
referred to as the "GT GROUP")
AND: SUZY SHIER INC.
AND: LOS ANGELES EXPRESS FASHIONS INC.
(Suzy Shier Inc. and Los Angeles Express Fashions
Inc. are hereinafter sometimes collectively
referred to as the "SS GROUP")
AND: MARYSE BERTRAND
in her capacity as trustee
(hereinafter referred to as the "VOTING TRUSTEE")
AND: SUZY SHIER LIMITED
(hereinafter referred to as "SS LIMITED")
WHEREAS the parties to this agreement have entered into the Voting Trust
Agreement pursuant to which, among other things, the GT Group and the SS Group
deposited with the Voting Trustee the Deposited Shares;
<PAGE>
- 2 -
WHEREAS each of the GT Group and the SS Group wish to convert the
Designated Shares into Converted Shares and to sell the Converted Shares
pursuant to the Public Offering;
WHEREAS as a consequence of the conversion of the Designated Shares into
the Converted Shares and the sale of the Converted Shares pursuant to the Public
Offering, SS Limited will cease to be entitled to consolidate its financial
statements with those of the Company under Canadian generally accepted
accounting principles;
WHEREAS the parties to the Voting Trust Agreement have agreed to terminate
the Voting Trust Agreement to enable the Converted Shares to be sold pursuant to
the Public Offering, the whole upon the terms and conditions set forth in this
agreement.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH:
1.01 PREAMBLE
The preamble hereto shall constitute an integral part of this agreement as
if herein recited and incorporated at length.
1.02 DEFINITIONS
In this agreement, the following terms shall have the following respective
meanings, namely:
(a) "CLOSING" means the closing of the Public Offering;
(b) "COMPANY" means The Wet Seal, Inc., a Delaware corporation;
(c) "CONVERTED SHARES" means the shares of Class A Common Stock of the Company
issued upon the conversion of the Designated Shares;
(d) "DEPOSITED SHARES" means, as to each of the GT Group and the SS Group, the
aggregate number of shares of Class B Common Stock of the Company deposited
by each of them respectively, with the Voting Trustee pursuant to the
Voting Trust Agreement as set forth in SCHEDULE "A" to this agreement;
(e) "DESIGNATED SHARES" means, as to the GT Group, 1,167,500 Deposited Shares,
and as to the SS Group, 1,167,500 Deposited Shares or, in each case, such
greater number of
<PAGE>
- 3 -
Deposited Shares as may be determined respectively by the GT Group or the
SS Group, as the case may be, and notified to the Voting Trustee;
(f) "PUBLIC OFFERING" means the public offering of up to 3,565,000 shares of
Class A Common Stock of the Company (including the Converted Shares)
contemplated by that certain registration statement on Form S-3 of the
Company dated April 30, 1996 filed by the Company with the Securities and
Exchange Commission of the United States; and
(g) "VOTING TRUST AGREEMENT" means that certain Voting Trust Agreement made as
of the 9th day of August, 1995 among the parties hereto.
1.03 TERMINATION OF VOTING TRUST AGREEMENT
The parties agree that the Voting Trust Agreement shall terminate with
effect immediately prior to, and conditional upon the occurrence of, the
Closing, provided that each of the following conditions is satisfied:
i) the Closing shall have occurred on or prior to December 31, 1996;
and
ii) at least 2,335,000 Designated Shares shall have been converted
into the Converted Shares prior to the Closing and such Converted
Shares shall have been sold at and by virtue of the Closing.
If both of the above conditions are satisfied, the Voting Trust Agreement
shall have terminated effective immediately prior to the Closing and the
Deposited Shares shall have been delivered by the Voting Trustee to the
respective beneficial owners thereof pursuant to section 1.04 hereof free of the
voting trust, rights of first refusal and other restrictions of the Voting Trust
Agreement.
Upon the termination of the Voting Trust Agreement and the delivery of the
Deposited Shares in accordance with the provisions hereof, each of the parties
thereto shall be released and discharged from all obligations, claims and
liabilities thereunder, subject to the provisions of the next paragraph.
In the event that either of the above conditions is not satisfied, this
agreement shall terminate and be null and void ab initio and the Voting Trust
Agreement shall remain in full force and effect unamended in accordance with its
terms and, in such event, the GT Group and the SS Group shall forthwith return
to the Voting Trustee the share certificates representing the
<PAGE>
- 4 -
Deposited Shares theretofore delivered by the Voting Trustee pursuant to section
1.04 hereof and the Voting Trustee shall issue and deliver voting trust
certificates in respect thereof.
1.04 PROCEDURE
The GT Group and SS Group shall forthwith surrender the voting trust
certificates representing the Deposited Shares to the Voting Trustee, and the
Voting Trustee shall cause to be delivered to the GT Group and the SS Group,
respectively, prior to the Closing, one or more certificates representing the
Deposited Shares endorsed in blank for transfer by the Voting Trustee.
1.05 REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other parties to this
agreement that this agreement has been duly authorized, executed and delivered
by such party and is a valid and binding agreement enforceable against such
party in accordance with its terms and, in the case of SS Limited, that this
agreement has been duly approved by the independent committee of directors
established pursuant to the Voting Trust Agreement.
1.06 NOTICES
All notices required or permitted to be given by this agreement shall be
given in accordance with section 7.01 of the Voting Trust Agreement.
1.07 GOVERNING LAW
This agreement shall be governed and construed in accordance with the laws
of the State of Delaware.
1.08 UNDERTAKING
In connection with this agreement as well as all transactions contemplated
by this agreement, the parties agree to execute and deliver such additional
documents and instruments, to pass such by-laws and resolutions and to perform
such additional acts as may be necessary or
<PAGE>
- 5 -
appropriate to effectuate, carry out and perform all the terms and provisions of
this agreement and to fully and effectively implement all such transactions.
1.09 COUNTERPARTS
This agreement may be executed in a number of counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF the parties hereto have signed this agreement as of the
date first hereinabove mentioned.
2927977 CANADA INC. GROSS-TEITELBAUM
HOLDINGS INC.
Per: Per:
------------------------- --------------------------
SUZY SHIER INC. LOS ANGELES EXPRESS
FASHIONS INC.
Per: Per:
------------------------- --------------------------
SUZY SHIER LIMITED
Per:
-------------------------------- --------------------------
Maryse Bertrand, in her capacity as
trustee
<PAGE>
SCHEDULE "A"
------------
NUMBER OF SHARES OF CLASS B COMMON
NAME OF SHAREHOLDER STOCK BENEFICIALLY OWNED
------------------- ------------------------
2927977 Canada Inc. 1,962,346
Gross-Teitelbaum Holdings Inc. 378,227
Suzy Shier Inc. 1,500,000
Los Angeles Express Fashions Inc.
1,500,000
