<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11 or Section
240.14a-12
THE WET SEAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(I)(1), 14a-6(I)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(I)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
THE WET SEAL, INC.
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
May 16, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Wet Seal, Inc. to be held at the Westin South Coast Plaza, 686 Anton Blvd.,
Costa Mesa, California 92626, at 10:00 a.m., on Tuesday, June 17, 1997.
During the Annual Meeting the matters described in the accompanying Proxy
Statement will be considered. In addition, there will be a report regarding the
progress of the Company and there will be an opportunity to ask questions of
general interest to you as a stockholder.
I hope you will be able to join us at the Annual Meeting. Whether or not you
expect to attend, you are urged to sign and return the enclosed proxy card in
the envelope provided in order to make certain that your shares will be
represented at the Annual Meeting.
Sincerely,
IRVING TEITELBAUM
CHAIRMAN OF THE BOARD
<PAGE>
THE WET SEAL, INC.
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1997
10:00 A.M.
------------------------
Notice is hereby given that the Annual Meeting (the "Annual Meeting") of
Stockholders of The Wet Seal, Inc. (the "Company") will be held at the Westin
South Coast Plaza, 686 Anton Blvd., Costa Mesa, California 92626, on Tuesday,
June 17, 1997 at 10:00 a.m. to consider and vote upon:
1. Election of a Board of Directors consisting of nine directors. The
attached Proxy Statement, which is part of the Notice, includes the
names of the nominees to be presented by the Board of Directors for
election.
2. Approval of an amendment to the Company's Certificate of
Incorporation to divide the Board of Directors of the Company into
three classes.
3. Approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Preferred Stock, par value $.01 per share, from 2,000,000 shares to
5,000,000 shares and the number of authorized shares of Class A
Common Stock, par value $.10 per share, from 20,000,000 shares to
50,000,000 shares.
4. Approval of an amendment to the Company's Certificate of
Incorporation to require that at least seventy-five (75%) of the
Company's shares must approve or authorize any business combination
(as hereinafter defined) which has not been approved or authorized by
at least seventy-five (75%) of the then incumbent directors of the
Company.
5. Ratification and approval of the Company's 1996 Long-Term Incentive
Plan.
6. Ratification of Deloitte & Touche LLP as the Company's independent
auditors for the fiscal year 1997.
7. To transact such other business as may properly come before the
Annual Meeting.
The Board of Directors has fixed the close of business on May 2, 1997 as the
record date for determination of stockholders entitled to notice of, and to
vote, at the Annual Meeting. A list of such stockholders will be available for
examination by any stockholder for any purpose germane to the Annual Meeting,
during normal business hours, at the office of the Company for a period of ten
days prior to the Annual Meeting.
To assure that your shares will be represented at the Annual Meeting, please
sign and promptly return the accompanying proxy card in the enclosed envelope.
You may revoke your proxy at any time before it is voted.
BY ORDER OF THE BOARD OF DIRECTORS,
STEPHEN GROSS
SECRETARY
Dated: May 16, 1997
<PAGE>
THE WET SEAL, INC.
64 FAIRBANKS
IRVINE, CALIFORNIA 92718
------------------------
PROXY STATEMENT
JUNE 17, 1997
------------------------
This Proxy Statement is furnished by the Board of Directors of The Wet Seal,
Inc., a Delaware Corporation, (the "Company") in connection with the
solicitation of proxies for use at the Annual Meeting of Stockholders to be held
at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa, California on
Tuesday, June 17, 1997 beginning at 10:00 a.m. and at any adjournments thereof.
The Annual Meeting has been called to consider and vote upon the election of
nine directors; the division of the Company's Board of Directors into three
classes; an increase in the number of authorized shares of the Company's
Preferred Stock and Class A Common Stock; the requirement that at least
seventy-five (75%) of the Company's shares must approve or authorize certain
business combinations; to ratify and approve the Company's 1996 Long-Term
Incentive Plan; to ratify the Board of Directors' nomination of Deloitte &
Touche LLP as the Company's independent auditors; and to consider any other
business as may properly come before the Annual Meeting. This Proxy Statement
and the accompanying proxy are being sent to stockholders of record on or about
May 16, 1997.
VOTING BY STOCKHOLDERS
Only holders of record of the Company's common stock, at the close of
business on May 2, 1997, are entitled to receive notice of, and to vote at, the
Annual Meeting. On that date, there were 10,628,874 shares of the Company's
Class A Common Stock, $.10 par value, and 2,912,665 shares of the Company's
Class B Common Stock, $.10 par value, issued, outstanding and entitled to vote.
Class A Common Stock is entitled to one vote per share and, while both the Class
A and Class B vote together as a single Class, the Class B Common Stock is
entitled to two votes per share. According to the Company's Restated Certificate
of Incorporation, stockholders may not cumulate their voting rights. Thus, the
holders of a plurality of the shares voting at the Annual Meeting will be able
to elect all of the directors. The ratification and approval of items 2 through
6 will require the affirmative vote of holders of a majority of the Common Stock
entitled to vote thereon present in person or by proxy at the Annual Meeting.
The shares represented by each properly executed unrevoked proxy received in
time for the Annual Meeting will be voted in accordance with the instructions
specified therein, or, in the absence of instructions, FOR items 1 through 6,
and will be voted in accordance with the discretion of the proxies upon all
other matters which may properly come before the Annual Meeting. Any proxy
received by the Company may be subsequently revoked by the stockholder any time
before it is voted at the meeting either by delivering a subsequent proxy or
other written notice of revocation to the Company at its above address or by
attending the meeting and voting in person. Pursuant to Delaware law,
abstentions are treated as present and entitled to vote and thus have the effect
of a vote against the matter. A broker non-vote on a matter is considered not
entitled to vote on that matter and thus is not counted in determining whether a
matter requiring approval of a majority of the shares present and entitled to
vote has been approved or whether a majority of the vote of the shares present
and entitled to vote has been cast.
1
<PAGE>
ELECTION OF DIRECTORS
DIRECTORS
The Company's Bylaws give the Board the power to set the number of directors
at no less than three nor more than fifteen. The size of the Company's Board is
currently set at nine. The directors so elected will serve until the next Annual
Meeting of Stockholders. Nine directors are to be elected at the Annual Meeting
to be held on June 17, 1997. All of the nominees are currently directors of the
Company. The Board knows of no reason why any nominee for director would be
unable to serve as a director. In the event that any of them should become
unavailable prior to the Annual Meeting, the proxy will be voted for a
substitute nominee or nominees designated by the Board of Directors, or the
number of directors may be reduced accordingly.
The following table sets forth information regarding the nominees for
director:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------
<S> <C>
George H. Benter, Jr. Mr. George H. Benter, Jr. has been a director of the Company since
Age: 55 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.
Kathy Bronstein Ms. Kathy Bronstein was appointed the Company's Vice Chairman of the
Age: 45 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 merchandising and marketing strategies.
Stephen Gross(1) Mr. Stephen Gross has been the Secretary and a director of the Company
Age: 51 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.
Walter F. Loeb Mr. Walter F. Loeb has been a director of the Company since May 1993.
Age: 72 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 Mr. Wilfred Posluns has been a director of the Company since 1990. He
Age: 65 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
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Wilfred Posluns (con't.) 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., Israel Discount Bank of Canada and Pacific
Linen. 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 Mr. Gerald Randolph has been a director of the Company since July
Age: 78 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 Mr. Alan Siegel has been a director of the Company since 1990. Mr.
Age: 62 Siegel 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.
Irving Teitelbaum(1) Mr. Irving Teitelbaum has been Chairman of the Board and a director of
Age: 58 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 is
also Chairman of La Senza PLC, a U.K. public company listed on the AIM
market of the London Stock Exchange, retailing lingerie in over 38
stores in the United Kingdom. Mr. Teitelbaum also serves as President
of First Canada Management Corp., a management consulting firm.
Edmond Thomas Mr. Edmond Thomas was appointed the Company's President in March 1994.
Age: 43 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 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.
</TABLE>
- ------------------------
(1) Mr. Teitelbaum and Mr. Gross are brothers-in-law.
3
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company who are not also directors are set
forth below:
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION AND BACKGROUND
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Barbara Bachman Ms. Barbara Bachman has been the Company's Vice President of Store
Age: 47 Operations since December 1994. From 1982 to 1994, Ms. Bachman served
as Vice President of Stores 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 Ms. Cecilia Gasgonia has been the Director of Merchandise Planning
Age: 36 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 Ms. Sharon Hughes has been employed by the Company since May 1990.
Age: 37 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 Ms. Ann Cadier Kim has been employed by the Company since January
Age: 40 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 Mr. Ron Shaban has been employed by the Company since September 1993
Age: 52 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.
Cheryl Rudich Ms. Cheryl Rudich has been the Director of Marketing since joining the
Age: 36 Company in February 1994. She was appointed Vice President of
Marketing in August 1996. From 1985 to January 1994, Ms. Rudich was
Creative Director with The Mednick Group in Los Angeles.
</TABLE>
4
<PAGE>
The Board of Directors met or took action by written consent five times in
the fiscal year ended February 1, 1997. Each of the directors attended at least
75% of the Board of Directors meetings and their respective committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Executive Committee consisting of Irving Teitelbaum,
Kathy Bronstein and Edmond Thomas. The Executive Committee was formed in April
1990. Its primary responsibility is to oversee the execution of lease
commitments made by the Company between meetings of the Board of Directors.
The Company has an Audit Committee consisting of Gerald Randolph (Chairman),
George H. Benter, Jr. and Wilfred Posluns. The Audit Committee is responsible
for reviewing, as it shall deem appropriate, and recommending to the Board of
Directors internal accounting and finance controls for the Company and
accounting principles and auditing practices and procedures to be employed in
the preparation and review of the Company's financial statements. The Audit
Committee is also responsible for recommending to the Board of Directors
independent public accountants to audit the annual financial statements of the
Company and scope of the audit to be undertaken by the accountants.
The Company has no nominating committee. Nominations are proposed by the
Executive Committee of the Board.
The Company has a Compensation Committee consisting of Irving Teitelbaum,
Wilfred Posluns and Stephen Gross. The Compensation Committee is responsible for
establishing general compensation policies and specific compensation levels for
the Company's executive officers. See "Report of the Compensation Committee on
Executive Compensation".
The Company has an Option Committee consisting of Walter F. Loeb and George
H. Benter, Jr. The Option Committee is responsible for granting stock options to
executive officers and other key employees whose contributions are considered
important to the long-term success of the Company pursuant to the Company's
long-term incentive plans.
During the fiscal year ended February 1, 1997 the Executive Committee met or
took action by written consent ten times, the Compensation Committee met or took
action by written consent one time, the Audit Committee met or took action by
written consent three times and the Option Committee met or took action by
written consent three times.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth the compensation (cash and non cash) for the
Chief Executive Officer and the four other most highly compensated executive
officers who earned in excess of $100,000 per annum during any of the Company's
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
----------------------------------------- STOCK UNDERLYING
NAME AND FISCAL OTHER ANNUAL AWARDS STOCK OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENASTION($)(1) ($)(2) (#) PAYOUTS($) COMPENSATION($)
- -------------------- ------ --------- --------- ------------------ ---------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kathy Bronstein 1996 633,171 917,560(3) -- 42,303 -- -- --
Vice Chairman and 1995 433,135 348,180(4) -- 20,680 -- -- --
Chief Executive 1994 284,607 -- -- -- 200,000 -- --
Officer
Edmond Thomas 1996 566,853 524,320(3) -- 37,010 -- -- --
President and 1995 362,272 198,960(4) -- 18,800 -- -- --
Chief
Operating Officer 1994 250,000 -- -- -- 200,000 -- --
Barbara Bachman 1996 166,211 -- -- 12,276 -- -- --
Vice President of 1995 152,654 5,000 -- 6,204 -- -- --
Store Operations 1994(5) 24,231 10,000 -- -- 10,000 -- --
Ann Cadier Kim 1996 140,951 -- -- 9,881 -- -- --
Vice President of 1995 109,389 10,000 -- 5,266 10,000 -- --
Finance 1994(6) 92,819 -- -- -- 10,000 -- --
Sharon Hughes 1996 138,768 -- -- 9,700 -- -- --
Vice President of 1995 127,610 -- -- 5,170 -- -- --
Merchandising 1994 110,000 -- -- -- 10,000 -- --
</TABLE>
- ------------------------
(1) While the named executive officers enjoy certain perquisites, for fiscal
years 1994, 1995 and 1996 these did not exceed the lesser of $50,000 or 10%
of each officer's salary and bonus.
(2) The Company has a stock bonus plan whereby certain employees of the Company
receive Class A Common Stock in proportion to their salary. The amount of
the award is also dependent on the Company's earnings before tax and the
stock price on the date of grant. The bonus shares vest at a rate of 33.33%
per year on each anniversary of the grant date, and a participant's right to
non issued shares is subject to forfeiture if the participant's employment
is terminated. Dividends are not paid on stock grant awards until such time
as the stock is vested and issued to the executive. Shares granted under the
plan held by executives at February 1, 1997 are as follows: Ms.
Bronstein--4,906; Mr. Thomas--5,803; Ms. Bachman--1,451; Ms. Cadier
Kim--2,599; and Ms. Hughes--2,991. The aggregate market value at February 1,
1997 of these shares is as follows: Ms. Bronstein--$98,733; Mr.
Thomas--$116,785;Ms. Bachman--$29,201; Ms. Cadier Kim--$52,305 and Ms.
Hughes-- $60,194.
(3) Bonus amounts earned in fiscal 1996 were paid to the executives in fiscal
1997.
(4) Bonus amounts earned in fiscal 1995 were paid to the executives in fiscal
1996.
(5) Ms. Bachman was appointed Vice President of Store Operations in December
1994.
(6) Ms. Cadier Kim was appointed Vice President of Finance in March 1994.
OPTION GRANTS
There were no options granted in fiscal 1996.
6
<PAGE>
OPTION EXERCISE AND FISCAL YEAR-END VALUES
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND OPTION VALUES AT FEBRUARY 1, 1997
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FEBRUARY 1, 1997(#) FEBRUARY 1, 1997($)(1)
ACQUIRED ON VALUE ---------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------- ----------- ---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kathy Bronstein.......................... 120,000 1,710,000 -- 120,000 -- 1,920,000
Edmond Thomas............................ 120,000 1,967,300 -- 120,000 -- 1,920,000
Barbara Bachman.......................... -- -- 4,000 6,000 61,500 92,250
Ann Cadier Kim........................... 5,000 79,250 1,000 14,000 12,125 193,000
Sharon Hughes............................ 3,500 36,750 500 6,000 8,000 96,000
</TABLE>
- ------------------------
(1) Represents the market value of shares underlying "in-the-money" options on
February 1, 1997 less the option exercise price. Options are "in-the-money"
at the fiscal year end if the fair market value of the underlying securities
on such date exceeds the exercise or base price of the option.
DIRECTOR COMPENSATION
All directors who are not directly affiliated with the Company as well as
one director who is affiliated receive a fee of $5,000 for each board meeting
attended, with a minimum yearly fee of $20,000. All directors are reimbursed for
expenses connected with attendance at the meetings of the Board of Directors. An
additional fee of $1,000 is paid to non-employee directors for each Audit
committee meeting attended.
All directors, except one, who are not directly affiliated with the Company
as well as one director who is affiliated were granted stock options of 10,000
shares each in fiscal 1994 pursuant to the Company's 1994 Long-Term Incentive
Plan. One independent director was granted 15,000 options in fiscal 1996. The
options vest at the rate of 20% per year for the next five years.
EMPLOYMENT AGREEMENTS
KATHY BRONSTEIN
Kathy Bronstein has served as the Chief Executive Officer of the Company
since March 1992. On December 30, 1988, in her former position of Executive Vice
President and General Merchandise Manager, Ms. Bronstein entered into an
employment agreement with the Company. Under this agreement, as amended, Ms.
Bronstein is entitled to a base salary of $550,000 per annum, adjusted annually
by 0.5% ( 1/2 of 1%) of the pre-tax profits of the Company for the preceding
fiscal year to the extent this amount exceeds the aggregate cash dividends Ms.
Bronstein is eligible to receive on her holdings of the Company's capital stock
referable to the same fiscal year. This adjustment is not cumulative and is in
lieu of any salary review or cost of living adjustments. Ms. Bronstein also
receives an incentive bonus of 3.5% of the pre-tax profits of the Company (as
defined in the agreement) for each fiscal year.
In January 1995, Ms. Bronstein's employment agreement was amended to provide
automatic extensions to the term of her employment agreement as well as
termination benefits upon the occurrence of certain trigger events. In the event
of a trigger event, the employment agreement is terminated and Ms. Bronstein is
entitled to receive an immediate payment approximately equal to three years of
Ms. Bronllstein's current base salary and bonus during the last three fiscal
years. Trigger events include a "change in control" and either (i) Ms.
Bronstein's election to resign within 90 days of a material change in Ms.
Bronstein's rights and duties or (ii) Ms. Bronstein's termination by the Company
without cause. A "change in control" means (i) the disposition or conversion by
a Class B stockholder (other than
7
<PAGE>
Ms. Bronstein) of a majority of that stockholder's Class B shares or (ii) the
acquisition of more than 50% of the voting power in a Class B stockholder or the
ability to control the disposition or voting of a Class B stockholder's shares
and a majority of the Board of Directors of the Company ceases to be those in
office two years prior to the change in control ("Continuing Directors") or
those elected by a majority of other Continuing Directors. In addition, upon a
change in control (regardless of the termination of the employment agreement),
Ms. Bronstein's stock options become immediately exercisable. In the event that
the total payments made to Ms. Bronstein upon the occurrence of a trigger event
result in "excess parachute payments" under the Internal Revenue Code of 1986,
as amended, the Company would be obligated to pay the excise tax due on such
amount and any income tax obligations arising from reimbursement of any such
excise taxes.
Ms. Bronstein's agreement expires on January 30, 2002. 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. She has agreed not to
compete with the Company during the term of her employment and for a period of
two (2) years thereafter. She is provided with a car by the Company.
The Company has obtained "key man" life insurance in the amount of $5.0
million payable to the Company in the event of Ms. Bronstein's death while
employed by the Company.
EDMOND THOMAS
Edmond Thomas has served as the Company's President and Chief Operating
Officer since March 17, 1994. On June 22, 1992, in his former position of
Executive Vice President and Chief Operating Officer, he entered into an
employment agreement with the Company. Under this agreement, as amended, Mr.
Thomas is entitled to a base salary of $500,000 per annum plus an annual
adjustment of .25% ( 1/4 of 1%) of the pre-tax profits of the Company for the
preceding fiscal year to the extent this amount exceeds the aggregate cash
dividends Mr. Thomas is eligible to receive on his holdings of the Company's
capital stock referable to the same fiscal year. This adjustment is non
cumulative and is in lieu of any salary review or cost of living adjustments.
Mr. Thomas also receives an incentive bonus of 2% of the pre-tax profits of the
Company (as defined in the agreement) for each fiscal year.
In January 1995, Mr. Thomas' employment agreement was amended to provide
automatic extensions to the term of his employment agreement as well as
termination benefits upon the occurrence of certain trigger events. In the event
of a trigger event, the employment agreement is terminated and Mr. Thomas is
entitled to receive an immediate payment approximately equal to three years of
Mr. Thomas' current base salary and bonus during the last three fiscal years.
Trigger events include a "change in control" and either (i) Mr. Thomas' election
to resign within 90 days of a material change in Mr. Thomas' rights and duties
or (ii) Mr. Thomas' termination by the Company without cause. A "change in
control" means (i) the disposition or conversion by a Class B stockholder (other
than Ms. Bronstein) of a majority of that stockholder's Class B shares or (ii)
the acquisition of more than 50% of the voting power in a Class B stockholder or
the ability to control the disposition or voting of a Class B stockholder's
shares and a majority of the Board of Directors of the Company ceases to be
those in office two years prior to the change in control ("Continuing
Directors") or those elected by a majority of other Continuing Directors. In
addition, upon a change in control (regardless of the termination of the
employment agreement), Mr. Thomas' stock options become immediately exercisable.
In the event that the total payments made to Mr. Thomas upon the occurrence of a
trigger event result in "excess parachute payments" under the Internal Revenue
Code of 1986, as amended, the Company would be obligated to pay the excise tax
due on such amount and any income tax obligations arising from reimbursement of
any such excise taxes.
Mr. Thomas' agreement expires on January 30, 2002. 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. He has agreed not to compete
with the
8
<PAGE>
Company during the term of his employment and for a period of two (2) years
thereafter. He is provided with a car by the Company.
The Company has obtained "key man" life insurance in the amount of $5.0
million payable to the Company in the event of Mr. Thomas' death while employed
by the Company.
BUSINESS RELATIONSHIPS
MANAGEMENT SERVICES
In each of the fiscal years ended February 1, 1997, February 3, 1996 and
January 28, 1995, a fee of $250,000 was paid to First Canada Management, Inc., a
company controlled by Irving Teitelbaum, for the services of Irving Teitelbaum,
Chairman of the Board of the Company, and Stephen Gross, Corporate Secretary of
the Company, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Irving Teitelbaum, Wilfred Posluns and Stephen Gross serve as members of the
Compensation Committee. Mr. Teitelbaum also serves as Chairman of the Board of
the Company and Mr. Gross also serves as the Secretary of the Company.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The primary duties of the Compensation Committee include: (i) reviewing the
compensation levels of the Company's primary executive officers and certain
other members of senior management, (ii) consulting with and making
recommendations to the Company's Option Committee regarding the Company's
overall policy of granting options and awards under the Company's long-term
incentive plans, (iii) monitoring the performance of senior management, and (iv)
related matters. A decision to employ any person with an annual compensation of
$150,000 or more (or any increase in annual compensation to $150,000 or more)
must be approved by the Compensation Committee. The Compensation Committee is
comprised entirely of non-employee Directors.
COMPENSATION PHILOSOPHY
The Company's executive compensation programs are based upon the recognition
that The Wet Seal, Inc. competes in a creative industry in which it is critical
to stay current with rapidly changing trends and styles. Competition is intense
for talented executives who can successfully guide a company in this type of
competitive environment. Therefore, the Company's compensation programs are
designed to provide total compensation packages that will both attract talented
individuals to the Company as well as provide rewards based upon the Company's
long-term success.
With these principles in mind, the Compensation Committee has set forth the
following guidelines:
1. Provide base salaries which are competitive in the retail clothing
industry to attract and retain talented individuals;
2. Provide annual bonuses that are tied to the Company's short-term
performance to align the interests of the Company's executives with those of
its stockholders; and
3. Provide long-term incentive benefits which will reward long-term
commitment to the Company.
COMPENSATION OF EXECUTIVE OFFICERS
Base salaries for executive officers are established with a view to the
responsibilities of the position and the experience of the individual. Salary
levels are also fixed with reference to comparable companies in
9
<PAGE>
retail and related trades. The salaries of key executive officers and the
incentive plans in which they participate are reviewed annually by the
Compensation Committee in light of the Committee's assessment of individual
performance, contribution to the Company and level of responsibility.
The Chief Executive Officer (the "CEO") and the President and Chief
Operating Officer are eligible pursuant to their employment agreements to
receive annual cash bonuses of 3.5% and 2%, respectively, of the Company's
pre-tax profit. The Compensation Committee believes that tying annual cash
bonuses to the Company's profitability aligns the interests of management with
stockholders and encourages intensive efforts to attain and increase
profitability. The CEO and the President and Chief Operating Officer of the
Company earned cash bonuses in fiscal 1996 in the amounts of $917,560 and
$524,320, respectively, which were paid in fiscal 1997.
The Company also maintains an employee stock bonus plan in which the top 25
to 30 executives of the Company are eligible to participate. Awards under this
plan to executives are calculated by multiplying the Company's fiscal year-end
pre-tax profit as a percentage of sales by the executive's base salary and
dividing such amount by the price of the Company's Class A Common Stock as of
the end of the fiscal year. Grants under the stock bonus plan vest over a period
of three years.
Stock options are granted to executive officers and other key employees
whose contributions are considered important to the long-term success of the
Company pursuant to the Company's long-term incentive plans. Stock options have
historically been granted by the Option Committee on a case-by-case basis based
upon the Board's evaluation of an individual's past contributions and potential
future contributions to the Company. In granting stock options, the Option
Committee takes into consideration the anticipated long-term contributions of an
individual to the potential growth and success of the Company, as well as the
number of options previously granted to the individual.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Since March 1992, Kathy Bronstein has served as CEO of the Company. Ms.
Bronstein received a base salary of $375,000 in fiscal 1995. In December 1995,
Ms. Bronstein's employment agreement was amended to increase her base salary to
$550,000. The Compensation Committee deemed this increase appropriate in light
of the Company's recent performance and the successful acquisition of the
Contempo Casuals chain, which substantially increased the size of the Company.
As the Company continues to adapt to a changed environment in the women's retail
apparel industry, the Compensation Committee believes that Ms. Bronstein's
experience and capabilities will be critical in enabling the Company to remain
competitive and profitable. Ms. Bronstein is eligible to receive a
non-cumulative annual adjustment (in lieu of a cost of living adjustment) to her
base salary of 0.5% of the pre-tax profits of the Company for the preceding
fiscal year to the extent this amount exceeds the aggregate cash dividends Ms.
Bronstein is eligible to receive on her holdings of Company common stock for the
same fiscal year. Ms. Bronstein received such an adjustment in fiscal 1996. See
"Executive Compensation and Other Information-- Employment Agreements." Ms.
Bronstein is also eligible to receive an annual cash bonus pursuant to her
employment agreement of 3.5% of the pre-tax profits of the Company for each
fiscal year. Under this formula, Ms. Bronstein earned a cash bonus in fiscal
1996 in the amount of $917,560, which was paid in fiscal 1997.
The Compensation Committee
Irving Teitelbaum
Wilfred Posluns
Stephen Gross
10
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Performance Graph compares the cumulative stockholder return on the
Company's common stock with the return on the Total Return Index for the Nasdaq
Stock Market (US) and the Nasdaq Retail Trade Stocks. The Performance Graph
assumes $100 invested on January 31, 1992 in the stock of The Wet Seal, Inc.,
the Nasdaq Stock Market (US) and the Nasdaq Retail Trade Stocks. It also assumes
that all dividends are reinvested.
PERFORMANCE GRAPH
FOR THE WET SEAL COMMON STOCK
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE WET NASDAQ STOCK NASDAQ RETAIL
SEAL, INC. MARKET (US) TRADE STOCKS
<S> <C> <C> <C>
January 31, 1992* 100 100 100
January 29, 1993* 60 113 90
January 28, 1994* 28 129 96
January 27, 1995* 34 125 86
February 2, 1996* 63 177 97
January 31, 1997* 171 230 119
</TABLE>
<TABLE>
<CAPTION>
JANUARY
31, JANUARY 29, JANUARY 28, JANUARY 27, FEBRUARY 2, JANUARY 31,
1992* 1993* 1994* 1995* 1996* 1997*
------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
The Wet Seal, Inc............................ 100 60 28 34 63 171
Nasdaq Stock Market (US)..................... 100 113 129 125 177 230
Nasdaq Retail Trade Stocks................... 100 90 96 86 97 119
</TABLE>
- ------------------------
* Date closest to the Company's fiscal year end.
The historical stock performance shown on the graph is not necessarily
indicative of future price performance.
11
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of May 2, 1997, for (i) each person
known to the Company to have beneficial ownership of more than 5% of each class
of the Company's capital stock; (ii) each of the Company's directors; (iii) each
of the Company's executive officers designated in the Summary Compensation
Table; and (iv) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
% % %
NUMBER BENEFICIAL BENEFICIAL BENEFICIAL PERCENT
OF SHARES OWNERSHIP NUMBER OWNERSHIP OWNERSHIP OF VOTE OF
OF OF SHARES OF SHARES OF SHARES OF ALL CLASSES ALL CLASSES
NAME CLASS A OF CLASS A OF CLASS B OF CLASS B OF STOCK OF STOCK
- ---------------------------------------- ---------- ------------ ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Los Angeles Express Fashions, Inc. (Suzy
Shier Ltd. Subsidiary) (1).............. -- -- 1,300,000 44.6% 9.6% 15.8%
1604 St. Regis Blvd.
Dorval, Quebec, Canada H9P1H6
3254127 Canada, Inc. (GTHI
Subsidiary) (1)......................... -- -- 815,573 28.0% 6.0% 9.9%
1604 St. Regis Blvd.
Dorval, Quebec, Canada H9P1H6
3254143 Canada, Inc. (Suzy Shier Ltd.
Subsidiary) (1) -- -- 175,000 6.0% 1.3% 2.1%
1604 St. Regis Blvd.
Dorval, Quebec, Canada H9P1H6
La Senza, Inc. (Suzy Shier Ltd
Subsidiary) (1)......................... -- -- 155,000 5.3% 1.1% 1.9%
1604 St. Regis Blvd.
Dorval, Quebec, Canada H9P1H6
Kathy Bronstein (2)..................... 50,935 * 467,092 16.0% 3.8% 6.0%
Ed Thomas (3)........................... 42,680 * -- -- * *
Barbara Bachman (4)..................... 5,280 * -- -- * *
Ann Cadier Kim (4)...................... 3,367 * -- -- * *
Sharon Hughes (4)....................... 4,542 * -- -- * *
George Benter (4)....................... 5,500 * -- -- * *
Walter F. Loeb (4)...................... 5,400 * -- -- * *
Gerald Randolph (4)..................... -- * -- -- * *
Alan Siegel (4)......................... -- * -- -- * *
Craig Drill Capital, L.P. (5)........... 1,563,800 14.7% -- -- 11.5% 9.5%
Park Avenue Plaza
New York, New York 10055
Husic Capital Management (6)............ 901,900 8.5% -- -- 6.7% 5.5%
555 California St., Ste 2900
San Francisco, California 94104
Delaware Management Holdings,
Inc. (7)................................ 663,400 6.2% -- -- 4.9% 4.0%
2005 Market St.
Philadelphia, Pennsylvania 19103
INVESCO PLC (8)......................... 551,500 5.2% -- -- 4.1% 3.4%
11 Devonshire Square
London, England EC2M 4YR
All directors and officers as a group
(14 individuals)........................ 128,267 1.2% 2,912,665 100.0% 22.5% 36.2%
</TABLE>
- ------------------------
* Less than 1%
12
<PAGE>
(1) Los Angeles Express Fashions, Inc., 3254127 Canada, Inc., 3254143 Canada,
Inc. and La Senza, Inc. are directly or indirectly controlled by Irving
Teitelbaum, Chairman of the Board, and Stephen Gross, Secretary and a
director of the Company. These stockholders beneficially own shares which in
the aggregate represent approximately 29.7% of the total voting power with
respect to the Company.
(2) Ms. Bronstein has sole voting and dispositive power with respect to all of
the stated holdings of Class A and Class B Common Stock. Shares held include
options representing the immediate right to purchase 40,000 shares of Class
A Common Stock. Ms. Bronstein also holds options to purchase an additional
80,000 shares of Class A Common Stock which become exercisable over the next
two years.
(3) Mr. Thomas has sole voting and dispositive power with respect to all of the
stated holdings of Class A Common Stock. Shares held include options
representing the immediate right to purchase 40,000 shares of Class A Common
Stock. Mr. Thomas also holds options to purchase an additional 80,000 shares
of Class A Common Stock which become exercisable over the next two years.
(4) Shares held include options representing the immediate right to purchase the
following shares of Class A Common Stock: Ms. Bachman--4,000; Ms. Cadier
Kim--3,000; Ms. Hughes--2,500; and Messrs. Benter and Loeb--4,000 each.
(5) 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.
(6) As reported in a Schedule 13G dated February 4, 1997, Husic Capital
Management ("Husic") is a registered investment adviser. Frank J. Husic and
Co. ("FJH&Co.") is the sole general partner of Husic. Frank J. Husic ("FJH")
is the sole shareholder of FJH&Co. Husic, FJH&Co., and FJH have shared
voting power with respect to 692,000 shares and shared dispositive power
with respect to 901,900 shares. Husic may be deemed to be the direct
beneficial owner of an aggregate position of 901,900 shares of the Class A
common stock of Wet Seal, Inc. as a result of its discretionary authority to
buy, sell, and vote shares of such Common Stock for its investment advisory
clients.
(7) As reported in a Schedule 13G dated February 3, 1997, Delaware Management
Holdings, Inc. ("DMHI") is the parent holding company of Delaware Management
Company, Inc. ("DMCI"). DMHI has sole voting power with respect to 17,850
shares and sole dispositive power with respect to 663,400 shares.
(8) As reported in a Schedule 13G dated February 14, 1997, INVESCO PLC ("IP") is
the parent holding company of INVESCO North American Group, Ltd. ("IAG"),
INVESCO, Inc. ("II"), INVESCO North American Holdings, Inc. ("IAH"), and
INVESCO Funds Group, Inc. ("IFG"). IP, IAG, II, IAH and IFG have shared
voting and dispositive power with respect to 551,500 shares.
13
<PAGE>
PROPOSALS
PROPOSAL # 1
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO DIVIDE THE BOARD OF
DIRECTORS INTO THREE CLASSES
The Company is proposing to amend its Certificate of Incorporation to divide
its Board of Directors into three classes to be designated Class I, Class II and
Class III. If the proposed amendment is adopted, the initial division of the
Board into classes will take place upon the filing of a Restated Certificate of
Incorporation containing the proposed amendment with the Secretary of State of
the State of Delaware.
Under the proposed amendment, each class of directors will consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board and approximately one-third of the members of the
Board will be elected at each annual meeting of stockholders. Assuming their
re-election as directors at the meeting, the initial Class I directors will be
Kathy Bronstein, Irving Teitelbaum and Edmond Thomas; the initial Class II
directors will be Stephen Gross, Wilfred Posluns and Gerald Randolph; and the
initial Class III directors will be George H. Benter, Jr., Walter F. Loeb and
Alan Siegel. If the persons, or others, constituting the Class I directors are
elected at the meeting in 1997, their term will consist of three years and will
expire in 2000. If the persons, or others, constituting the Class II directors
are elected in 1997, their term will consist of two years and will expire in
1999. If the Class III directors are elected in 1997, their term will consist of
one year and will expire in 1998. At each annual meeting of stockholders
beginning in 1998, the successors to the class of directors whose term expires
at that annual meeting shall be elected for a three-year term until their
successors are elected and qualified.
If the number of directors is changed, any increase or decrease in the
number of directors will be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class will hold office for a term that coincides with the
remaining term of that class. Each director will hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected, subject, however, to his prior death, resignation, retirement or
removal from office. Any vacancy occurring in the Board for any reason other
than the removal of directors by stockholders without cause, will be filled by a
vote of the majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Vacancies occurring as a result of the
removal of directors by stockholders without cause will be filled by
stockholders. Any director elected to fill a vacancy will hold office for a term
that coincides with the term of the class to which such director was elected.
The proposed amendment provides that any and all directors may be removed
with or without cause by vote of at least seventy-five (75%) of the shares of
the Company entitled to vote generally for the election of directors, voting
together as a single class, each class having the number of votes per share
provided by the Company's Certificate of Incorporation. If the amendment is
adopted, the affirmative vote of the holders of at least seventy-five percent
(75%) of the Company's shares entitled to vote generally for the election of
directors, voting together as a single class, each class having the number of
votes per share as provided by the Certificate of Incorporation, will be
required to alter, amend or repeal the provisions added to the Certificate of
Incorporation pursuant to this proposal.
The proposed amendment, if adopted, will be advantageous to the Company and
its stockholders because providing that directors shall serve three-year terms
rather than one-year terms will enhance the likelihood of continuity and
stability in the composition of the Board and in the policies formulated by the
Board. This will in turn permit the Board to represent more effectively the
interests of all stockholders, including the taking of action in response to
demands or actions by a minority stockholder or group. Moreover, the proposed
amendment, if adopted, will ensure that a majority of the directors at any given
time will have had prior experience as directors of the Company.
14
<PAGE>
There have been a number of attempts by various individuals and entities to
acquire significant minority positions in certain companies with the intent of
obtaining actual control of the companies by electing their own slate of
directors or of achieving some other goal, such as the repurchase of their
shares at a premium by threatening to obtain such control. These purchasers
often can elect a company's entire board of directors through a proxy contest or
otherwise, even though they do not own a majority of the company's outstanding
shares entitled to vote. The proposed amendment, if adopted, will likely
discourage such purchasers by preventing them from achieving control of the
Board quickly. Also, since neither the Delaware General Corporation Law, as
amended (the "DGCL"), nor the Company's Certificate of Incorporation or By-laws
require cumulative voting, a purchaser of a block of stock of the Company
constituting less than a majority of the Company's outstanding capital stock
will have no assurance of proportional representation on the Board. The effect
of the proposed amendment is that the Board could prevent any stockholder from
obtaining majority representation on the Board by enlarging the Board, if
possible, and filling the new directorships with its own nominees.
For the reasons outlined above, the adoption of the proposed amendment could
make more difficult or discourage the removal of the Company's management, which
removal some or a majority of holders of capital stock of the Company may deem
to be in their best interests. In addition, the adoption of the proposed
amendment could discourage or make more difficult or expensive, among other
transactions, a merger involving the Company, or a tender offer, open market
purchase program or other purchases of the capital stock of the Company in
circumstances that would give stockholders the opportunity to realize a premium
on the sale of their capital stock of the Company over the then-prevailing
market prices, which transactions some or a majority of such holders may deem to
be in their best interests.
The affirmative vote of a majority of the outstanding shares of the Company
is required to adopt the resolution to amend the Company's Certificate of
Incorporation in the manner described above. The Board unanimously recommends a
vote "FOR" approval of the resolution.
PROPOSAL # 2
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF THE COMPANY'S PREFERRED STOCK AND CLASS A COMMON STOCK
The Company is proposing to amend its Certificate of Incorporation to
increase the number of authorized shares of its Preferred Stock, par value $.01
per share, from 2,000,000 shares to 5,000,000 shares. No shares of the Company's
Preferred Stock are issued and outstanding. The Preferred Stock may be issued in
series and denominations and with terms and conditions as established by the
Company's Board of Directors.
In addition, the Company is proposing to amend its Certificate of
Incorporation to increase the number of authorized shares of its Class A Common
Stock, par value $.10 per share, from 20,000,000 shares to 50,000,000 shares.
The newly authorized shares of Class A Common Stock will be identical in all
respects to the issued and outstanding shares of Class A Common Stock. Of the
20,000,000 shares of Class A Common Stock the Company is presently authorized to
issue, 10,628,874 shares are issued and outstanding.
As the Company may require that additional shares of its capital stock be
available for acquisitions and other corporate purposes, such as stock splits or
other recapitalizations, the Board of Directors has resolved to seek approval of
additional shares of capital stock by amendment of the Company's Certificate of
Incorporation. While there are no acquisitions pending which would involve the
issuance of such additional shares, the Company does from time to time consider
potential acquisitions, some or all of which may involve the issuance of shares
by the Company.
15
<PAGE>
The affirmative vote of majority of the outstanding shares of the Company is
required to adopt the resolution to amend the Company's Certificate of
Incorporation to increase the authorized capital stock in the manner described
above. The Board of Directors unanimously recommends a vote "FOR" approval of
the resolution.
PROPOSAL # 3
AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO REQUIRE
SUPER-MAJORITY STOCKHOLDER APPROVAL OF BUSINESS COMBINATIONS
The Company is proposing to amend its Certificate of Incorporation to
require that the affirmative vote of at least seventy-five percent (75%) of the
Company's shares must approve or authorize any "business combination" which has
not been approved or authorized by at least seventy-five percent (75%) of the
incumbent directors. Under this proposal, the term "business combination" is
broadly defined to mean: (a) any merger or consolidation of the Company or any
subsidiary of the Company with any other corporation which is required by law to
be approved or authorized by the Company's stockholders; (b) any sale, lease or
exchange of all, or substantially all, of the property and assets of the Company
or any subsidiary of the Company; (c) any distribution to stockholders of the
Company in partial or complete liquidation of the assets of the Company or any
subsidiary of the Company; (d) the issuance or transfer by the Company or any
subsidiary of the Company of any securities of the Company or any subsidiary
which is required by law to be approved or authorized by the stockholders of the
Company, or with respect to which stockholder approval or authorization would be
a prerequisite to the listing on the Nasdaq Stock Market's National Market or
any other national securities exchange (each, an "Exchange") of the securities
to be issued or transferred; and (e) any reclassification of securities or
recapitalization of the Company, or any merger or consolidation of the Company
with any of its subsidiaries, which is required by law to be approved or
authorized by the stockholders of the Company, or with respect to which
stockholder approval would be a prerequisite to the listing on an Exchange of
the securities to be issued or transferred. If the proposed amendment is
adopted, the affirmative vote of the holders of at least seventy-five percent
(75%) of the Company's shares entitled to vote generally for the election of
directors, voting together as a single class, each class having the number of
votes per share as provided by the Certificate of Incorporation, will be
required to alter, amend or repeal the provisions added to the Certificate of
Incorporation pursuant to this proposal.
The adoption of the proposed amendment may make it more difficult for
hostile bidders to gain control of the Company through a merger, acquisition,
consolidation or other business combination. This increased difficulty, as well
as the cost and time delay involved with complying with the super-majority
voting provisions, may deter certain mergers, tender offers or other future
takeover attempts, including those which some or a majority of stockholders may
deem to be in their best interests or which would give stockholders the
opportunity to realize a premium on the sale of their capital stock of the
Company over then prevailing market prices.
The affirmative vote of a majority of the outstanding shares of the Company
is required to adopt the resolution to amend the Company's Certificate of
Incorporation in the manner described above. The Board unanimously recommends a
vote "FOR" approval of the resolution.
PROPOSAL # 4
APPROVAL OF THE COMPANY'S 1996 LONG-TERM INCENTIVE PLAN
The Company has adopted, subject to stockholder approval, The Wet Seal, Inc.
1996 Long-Term Incentive Plan (the "Plan"). The Plan will be administered by the
Option Committee and is intended to serve as a qualified performance-based
compensation program under Section 162(m) of the Internal Revenue Code (the
"Code"). Section 162(m) of the Code denies a deduction by an employer for
certain
16
<PAGE>
compensation in excess of $1,000,000 per year paid by a publicly traded
corporation to the chief executive officer and the four most highly compensated
executive officers other than the chief executive officer. Certain compensation,
including compensation based on performance goals, is excluded from this
deduction limit. Among the requirements for compensation to qualify for
exclusion from the deduction limit is that the material terms pursuant to which
the compensation is to be paid, including the performance goals, be disclosed to
and approved by stockholders in a separate vote prior to the payment. The Plan
is therefore being submitted to the Company's stockholders for approval at the
Special Meeting.
PURPOSE AND ELIGIBILITY
The purpose of the Plan is to strengthen the Company by providing employees
and others added incentive for high levels of performance and for extraordinary
efforts to increase the earnings and long-term growth of the Company. The Plan
seeks to accomplish this purpose by enabling Participants to purchase or acquire
shares of the Company's Class A Common Stock ("Shares"), stock appreciation
rights or other equity-based rights, thereby increasing their proprietary
interest in the Company's success and encouraging them to remain in the employ
or service of the Company. The Plan contemplates the issuance of incentive stock
options within the meaning of Section 422 of the Code, as well as non-statutory
stock options, stock appreciation rights, restricted or nonrestricted awards of
shares, performance grants, certain limited rights issued in tandem with stock
options, or any combination of the foregoing ("Awards"). Employees, officers,
directors, consultants and independent contractors (including dealers,
distributors and other business entities or persons providing services) of the
Company and its subsidiaries ("Participants") are eligible for Awards under the
Plan. The approximate number of persons eligible to participate is 4,700. The
Company has authorized 700,000 Shares, [with an aggregate market value of
$14,087,500 as of February 1, 1997], for issuance under the Plan.
ADMINISTRATION
The Option Committee, in its sole discretion, has the authority, among other
things, to determine the terms of all Awards granted under the Plan, including
any purchase or exercise price for an Award; to determine which employees,
outside consultants and independent contractors will be granted Awards, and the
time or times at which Awards will be granted, exercised and become forfeitable;
to determine the number of Shares covered by an Award; to interpret the Plan;
and to make all other determinations deemed advisable for the administration of
the Plan.
OPTIONS
The Option Committee may from time to time grant incentive stock options
("Incentive Options") and non-statutory options ("Non-Qualified Options", and
together with Incentive Options, "Options") to any Participant. The terms of
Options granted under the Plan will be set out in agreements between the Company
and Participants which will contain such provisions as the Option Committee from
time to time deems appropriate, including the exercise price and expiration date
of such Options. Option agreements will specify whether or not an Option is an
Incentive Option.
In no event will the exercise price of an Incentive Option or Non-Qualified
Option be less than one hundred percent (100%) of the fair market value of the
Shares subject to such Option on the date of grant. The term of Incentive
Options cannot exceed ten years from the date of grant and generally cannot
extend beyond a Participant's employment or relationship with the Company. The
aggregate fair market value, determined as of the time the Incentive Option is
granted, of the Common Stock which may become exercisable for the first time by
any employee during any calendar year cannot exceed $100,000. No Incentive
Option will be granted to an employee, who, at the time of grant, owns (within
the meaning of Section 424(d) of the Code) stock representing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, its parent or subsidiaries, unless the exercise price of the Incentive
Option is at least one hundred and ten percent (110%) of the fair market value,
at the time of
17
<PAGE>
grant, of the Shares subject to the Option, and the Option by its terms is not
exercisable more than five years from the date of grant.
The consideration to be paid for the Shares to be issued upon exercise of an
Option, including the method of payment, will be determined by the Option
Committee and may consist of promissory notes, other Shares or such other
consideration and method of payment for the Shares as may be permitted under
applicable federal and state laws.
If a Participant ceases to be employed by, or ceases to have a relationship
with, the Company for any reason other than disability, cause, retirement or
death, such Participant's Options, to the extent exercisable at the time of
termination, may be exercised for a period of three months thereafter or the
date of expiration of the option by its terms, whichever is earlier. In the
event of a Participant's disability or death, such Participant's Options will
become fully vested and exercisable and will expire not later than one year
thereafter or the date of expiration of the option by its terms, whichever is
earlier. When a Participant retires, such Participant's Options will become
fully vested and exercisable and will expire not later than two years thereafter
or the date of expiration of the option by its terms, whichever is earlier. The
decision as to whether a termination is by reason of retirement will be made by
the Option Committee, whose decision will be final and conclusive. If a
Participant's employment or relationship with the Company is terminated for
cause, such Participant's Options will expire immediately; provided, however,
that the Option Committee may waive expiration and permit the Participant to
exercise Options, to the extent exercisable at the time of termination, for a
period of three months from the date of notice of such waiver.
STOCK APPRECIATION RIGHTS
The Option Committee from time to time may grant stock appreciation rights
("SARs") to any Participant either at the time of grant of an Option or
thereafter by amendment to an Option. The exercise of an Option will result in
an immediate cancellation of its corresponding SAR, and vice versa. SARs will
expire at the same time as the related Option expires, and will be exercisable
and transferable when, to the extent and on the condition that the related
Option is exercisable or transferable. No SAR may be exercised unless the fair
market value per Share on the date of exercise exceeds the exercise price of the
related Option. Upon the exercise of an SAR, a Participant will be entitled to
receive an amount equal to the difference between the fair market value per
Share on the date of exercise and the exercise price of the Option to which the
SAR corresponds. Such payment may be satisfied by the Company in cash, in
Shares, or in a combination thereof, as determined by the Option Committee.
All SARs will be exercised automatically, to the extent the corresponding
Option is then exercisable, (A) on the last business day prior to the expiration
date of the related Option at the end of its stated term or (B) following (i)
the death, disability or retirement of a Participant or (ii) the termination of
a Participant's employment or relationship with the Company for any reason other
than cause; provided the fair market value per Share of the underlying Shares on
that date exceeds the exercise price of the related Option.
LIMITED RIGHTS
The Option Committee may grant limited rights ("Limited Rights") with
respect to all or some of the Shares covered by an Option at the time the Option
is granted or by amendment to a previously granted Option. A Limited Right will
be exercisable (A) during the 60 day period commencing on any date after the
effective date of the Plan on which a person or group, whose beneficial
ownership of Shares exceeds the aggregate beneficial ownership of the officers
and directors of the Company (excluding Shares owned by a director or officer
who is the person or a member of the group), becomes the direct or indirect
beneficial owner of twenty percent (20%) or more of the Company's outstanding
Shares, and (B) if stated in the Limited Right grant, upon the occurrence of an
event pursuant to which the outstanding Shares of the Company are increased,
decreased, changed into, or exchanged for a different number or kind of
18
<PAGE>
shares or securities, without receipt of consideration by the Company, through
reorganization, merger, recapitalization, reclassification, stock split, reverse
stock split, stock dividend, stock consolidation or otherwise. Upon the exercise
of a Limited Right, a Participant will be entitled to receive from the Company,
in cash, an amount equal to the difference between the fair market value per
Share of the Shares on the exercise and the grant dates. Upon the exercise or
termination of an Option, any related Limited Right shall terminate.
PERFORMANCE GRANTS
The Option Committee may award performance grants ("Performance Grants") to
Participants at any time, and it has sole discretion in determining the size and
composition of, the period over which performance is to be measured for, and the
performance goals and obligations for, Performance Grants. Performance Grants
under the Plan may include specific dollar-value target grants, performance
units and/ or performance shares. The value of each Performance Grant may be
fixed or it may be permitted to fluctuate based on performance factors selected
by the Option Committee. The earned portion of a Performance Grant may be paid
in restricted or nonrestricted shares, cash or a combination of both, as
determined in the sole discretion of the Option Committee.
A Participant must be an employee of the Company at the end of the
performance cycle in order to be entitled to payment of a Performance Grant
issued in respect of such cycle; provided, however, that a Participant may earn
a partial Performance Grant based upon the elapsed portion of the cycle and the
Company's performance during such portion of the cycle, if the Participant
ceases to be an employee of the Company as a result of his death, disability or
retirement. In the event of a change of control, a Participant will earn no less
than the portion of the Performance Grant that the participant would have earned
if the performance cycle had terminated as of the date of the change in control.
RESTRICTED AND NONRESTRICTED SHARE AWARDS
The Option Committee may at any time from time award Shares to such
Participants and in such amounts as it determines. Each award of Shares will
specify the applicable restrictions, if any, on such Shares, the duration of
such restrictions, and the time or times at which such restrictions shall lapse.
Restricted Shares may be issued at the time of award subject to forfeiture
in the event the applicable restrictions do not lapse, or upon lapse of such
restrictions. If Restricted Shares are issued at the time of award, the
Participant will be required to deposit certificates representing such
Restricted Shares with the Company during the period of any restriction and to
execute a blank stock power therefor. Except as otherwise provided by the Option
Committee, during the period of any restriction, the Participant will have all
rights and privileges of a stockholder with respect to Restricted Shares awarded
to him, including the right to receive dividends and to vote.
Unless otherwise provided by the Option Committee, all restrictions on
Restricted Shares will lapse upon termination of a Participant's employment or
relationship with the Company due to death, disability, retirement or a change
of control during a period of restriction. If a Participant's employment or
relationship with the Company is terminated for any other reason, all Restricted
Shares awarded to such Participant will be forfeited to the Company.
WITHHOLDING
With respect to any payments made to Participants under the Plan, the
Company will have the right to withhold any taxes required by law to be withheld
because of such payments.
19
<PAGE>
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
If any change is made to the Shares by reason of an event pursuant to which
the outstanding Shares of the Company are increased, decreased or changed into,
or exchanged for a different number or kind of shares or securities, without
receipt of consideration by the Company, through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split, stock
dividend, stock consolidation or otherwise, appropriate adjustments will be made
by the Option Committee to the kind and maximum number of shares subject to the
Plan and the kind and number of Shares and price per Share of stock subject to
each outstanding Award.
LIMITATION ON BENEFITS
No option, SAR or Limited Right may be exercised, no share award will vest
and no Performance Grant will be paid to the extent such exercise, vesting or
payment will create an "excess parachute payment" as defined in Section 280G of
the Code.
TRANSFERABILITY OF AWARDS
No grant of Options, SARs, Limited Rights, Performance Grants or other
rights granted under the Plan is assignable or transferable except by will or
the laws of descent and distribution. During the lifetime of a Participant,
Awards are exercisable only by the Participant.
TERMINATION OR AMENDMENT
The Option Committee may at any time discontinue granting Awards under the
Plan or otherwise suspend, amend or terminate the Plan, and may, with the
consent of the optionee or grantee, make such modification of the terms and
conditions of an Award as it shall deem advisable. Amendments or modifications
to the Plan or any Award are deemed adopted as of the date of the action of the
Option Committee effecting such amendment or modification and are effective
immediately, unless otherwise provided therein, subject to approval thereof (i)
within twelve (12) months before or after the effective date by shareholders of
the Corporation voting in person or by proxy at a duly held shareholders'
meeting when required to maintain or satisfy the requirements of Section 422 of
the Code with respect to Incentive Options, or Section 162(m) of the Code with
respect to performance-based compensation, (ii) by an appropriate governmental
agency, or (iii) when required by a securities exchange or automated quotation
system. No Option may be granted during any suspension or after termination of
the Plan.
PLAN BENEFITS
In as much as Awards to all Participants under the Plan will be granted at
the sole discretion of the Option Committee, neither the benefits which will be
received by or allocated to Participants under the Plan, nor the benefits which
would have been received by or allocated to Participants if the Plan had been in
effect during the last fiscal year, are determinable.
The Board unanimously recommends a vote "FOR" approval of the 1996 Long-term
Incentive Plan.
FEDERAL INCOME TAXATION
STOCK OPTIONS
The following is a brief discussion of the Federal income tax consequences
of option grants under the Plan based on the Code, as in effect as of the date
hereof. The Plan is not qualified under Section 401(a) of the Code. This
discussion is not intended to be exhaustive and does not describe the state or
local tax consequences.
20
<PAGE>
No taxable income is realized by the Participant upon the grant or exercise
of an Incentive Option. If Shares are issued to a Participant pursuant to the
exercise of an Incentive option, and if no disqualifying disposition of such
Shares is made by the Participant within two years after the date of grant or
within one year after the transfer of such Shares to such Participant, then (1)
upon sale of such Shares, any amount realized in excess of the exercise price
will be taxed to such Participant as a long-term capital gain and any loss
sustained will be a long-term capital loss, and (2) no deduction will be allowed
to the Company for Federal income tax purposes. If the Shares acquired upon the
exercise of an Incentive Option is disposed of prior to the expiration of either
holding period described above, generally (1) the Participant will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of such Shares at exercise (or, if less, the
amount realized on the disposition of such Shares) over the exercise price paid
for such Shares, and (2) the Company will be entitled to deduct such amount for
Federal income tax purposes if the amount represents an ordinary and necessary
business expense. Any further gain (or loss) realized by the Participant will be
taxed as short-term or long-term capital gain (or loss), as the case may be, and
will not result in any deduction by the Company. Subject to certain exceptions
for disability or death, if an Incentive Option is exercised more than three
months following the termination of employment, the exercise of the Option will
generally be taxed as the exercise of a Non-Qualified Option.
With respect to Non-Qualified Options (1) no income is realized by the
Participant at the time the Option is granted; (2) generally, at exercise,
ordinary income is realized by the Participant in an amount equal to the
difference between the exercise price paid for the Shares and the fair market
value of the Shares, if unrestricted, on the date of exercise, and the Company
is generally entitled to a tax deduction in the same amount subject to
applicable tax withholding requirements; and (3) at sale appreciation (or
depreciation) after the date as of which amounts are includable in income is
treated as either short-term or long-term capital gain (or loss) depending on
how long the Shares have been held.
STOCK APPRECIATION RIGHTS
There will be no Federal income tax consequences to either the employee or
the Company upon the grant of an SAR. However, the employee generally will
recognize ordinary income upon the exercise of an SAR in an amount equal to the
aggregate amount of cash and the fair market vale the Shares received upon
exercise. The Company will be entitled to a deduction equal to the amount
includable in the employee's income.
LIMITED RIGHTS
There will be no Federal income tax consequences to either the employee or
the Company upon the grant of an SAR. However, the employee generally will
recognize ordinary income upon the exercise of a Limited Right in an amount
equal to the aggregate amount of cash received upon exercise. The Company will
be entitled to a deduction equal to the amount includable in the employee's
income.
PERFORMANCE GRANTS
There will be no Federal income tax consequences to the employee or the
Company upon issuance of a Performance Grant. Employees will recognize taxable
income at the time when payment for the Performance Grant is received in an
amount equal to the aggregate amount of cash and the fair market value of Shares
acquired. The Company will be entitled to a deduction equal to the amount
includable in the associate's income.
RESTRICTED AND NONRESTRICTED SHARES
There will be no Federal income tax consequences to either the employee or
the Company upon the grant of Restricted Shares until expiration of the
restricted period and the satisfaction of any other
21
<PAGE>
conditions applicable to the Restricted Shares. At that time, the employee will
recognize taxable income equal to the then fair market value of the Shares and
the Company will be entitled to a corresponding deduction. However, the employee
may elect, within thirty (30) days after the date of the grant, to recognize
ordinary income as of the date of grant and the Company will be entitled to a
corresponding deduction at that time.
Employees will recognize taxable income at the Nonrestricted Shares are
received. The Company will be entitled to a deduction equal to the amount
includable in the employee's income.
22
<PAGE>
ELECTION OF AUDITORS
The Board of Directors, after consideration of the recommendation of the
Audit Committee, has nominated the independent public accounting firm of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
1997. Stockholders will be asked to ratify the nomination of the Board of
Directors. Deloitte & Touche LLP has served as the Company's auditors since
fiscal 1989. Representatives of Deloitte & Touche LLP are expected to be present
at the Annual Meeting and will be available to make a statement if they desire
and respond to appropriate inquiries from the stockholders. Although
ratification of the auditors by stockholders is not legally required, the
Company's Board of Directors believes such ratification to be in the best
interest of the Company.
REPORTING OBLIGATIONS OF OFFICERS, DIRECTORS AND 10% SHAREHOLDERS
The federal securities laws require the filing of certain reports by
officers, directors and beneficial owners of more than 10% of the Company's
securities with the Securities and Exchange Commission and Nasdaq. Specific due
dates have been established and the Company is required to disclose in this
Proxy Statement any failure to file by these dates. Based solely on a review of
copies of the filings furnished to the Company, or written representations that
no Form 5's were required, the Company believes that during fiscal 1996, all
filing requirements were satisfied by the Company's officers, directors and ten
percent (10%) stockholders, except as set forth below.
Cheryl Rudich did not file the required Form 3 on a timely basis when she
became an executive officer of the Company.
OTHER MATTERS
The Board of Directors knows of no other business to come before the Annual
Meeting. However, if any other matters are properly brought before the Annual
Meeting, the persons named in the accompanying form of Proxy or their
substitutes will vote in their discretion on such matters.
The cost of this solicitation or proxies will be borne by the Company.
Arrangements may be made with brokerage houses, custodians, nominees and
fiduciaries to send proxies and materials to their principals and, upon request,
the Company will reimburse them for their expenses in so doing.
STOCKHOLDER PROPOSALS FOR PRESENTATION
AT 1998 ANNUAL MEETING
If a Stockholder of the Company wishes to present a proposal for
consideration at the next Annual Meeting of Stockholders, the proposal must be
received at the executive offices of the Company no later than January 31, 1998,
to be considered for inclusion in the Company's Proxy Statement and form of
Proxy for that Annual Meeting.
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- --------- ------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
A PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION OF THE WET SEAL, INC..................... --
B 1996 LONG-TERM INCENTIVE PLAN.................................................................... --
</TABLE>
<PAGE>
PROXY
THE WET SEAL, INC. PROXY--1997 ANNUAL MEETING
Solicited on behalf of the Board of Directors
for the Annual Meeting June 17, 1997
The undersigned, a stockholder of The Wet Seal, Inc., a Delaware
corporation, appoints Kathy Bronstein and Edmond Thomas, or either of them,
his true and lawful agents and proxies, each with full power of substitution,
to vote all shares of stock that the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of the Wet Seal,
Inc. to be held at the Westin South Coast Plaza, 686 Anton Blvd., Costa Mesa,
California 92626 on June 17, 1997, at 10:00 a.m., and any adjournment
thereof, with respect to the following matters which are more fully explained
in the Proxy Statement of the Company dated May 16, 1997, receipt of which is
acknowledged by the undersigned:
Check here for / /
address change
NEW ADDRESS:___________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
(Continued and to be signed and dated on reverse side)
<PAGE>
/X/ Please mark your votes as in this example.
1. Election of Directors
FOR WITHHOLD
ALL NOMINEES AUTHORITY
/ / / /
Nominees:
George H. Benter, Jr., Kathy Bronstein, Stephen Gross, Walter F. Loeb,
Wilfred Posluns, Gerald Randolph, Alan Siegel, Irving Teitelbaum,
Edmond Thomas
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
2. To adopt an amendment to the Company's Certificate of Incorporation to
divide the Board of Directors of the Company into three classes.
/ / FOR / / AGAINST / / ABSTAIN
3. To adopt an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Preferred Stock, par value $.01
per share, from 2,000,000 shares to 5,000,000 shares and the authorized
number of Class A Common Stock, par value $.10 per share, from 20,000,000
shares to 50,000,000 shares.
/ / FOR / / AGAINST / / ABSTAIN
4. To adopt an amendment to the Company's Certificate of Incorporation to
require that at least seventy-five percent (75%) of the Company's shares must
approve or authorize any business combination (as the term is defined in
Exhibit A to the proxy statement) which has not been approved or authorized
by at least seventy-five percent (75%) of the then incumbent directors of the
Company.
/ / FOR / / AGAINST / / ABSTAIN
5. To ratify and approve the Company's 1996 Long-Term Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
6. Ratification of the selection by the Board of Directors of Deloitte &
Touche LLP as Independent Auditors for the Company for the year ending
January 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
7. Such other matters as may properly come before the Annual Meeting. The
Board of Directors at present knows of no other matters to be brought before
the Annual Meeting.
/ / FOR / / AGAINST / / ABSTAIN
SIGNATURE(S) DATE
----------------------------------- ----------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
This proxy will be voted in accordance with the instructions given. If no
direction is made, the shares represented by this proxy will be voted FOR
proposals 1 through 6 and will be voted in accordance with the discretion of
the proxies upon all other matters which may come before the Annual Meeting.
IMPORTANT: PLEASE VOTE, DATE, SIGN AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
EXHIBIT A
TEXT OF PROPOSED AMENDMENTS TO THE CERTIFICATE
OF INCORPORATION OF THE WET SEAL, INC.
Set forth below are the proposed amendments to the Certificate of
Incorporation of the Company which are to submitted for the approval of the
stockholders of the Company at the Annual Meeting to be held on June 17, 1997.
If such proposed amendments are approved by the stockholders of the Company, the
Board of Directors will cause a Restated Certificate of Incorporation containing
the proposed amendments to be filed with the Secretary of State of the State of
Delaware and will adopt conforming amendments to the Company's By-laws.
1. ARTICLE IX
Set forth below is the text of renumbered Article IX of the Company's
Certificate of Incorporation, as proposed to be amended if Proposal # 1 is
approved by the Company's stockholders:
"ARTICLE IX
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or
under the direction of the board of directors initially consisting of
nine (9) directors. The number of directors may be increased or
decreased (but to no more than fifteen (15) nor fewer than three (3)
directors) from time to time by resolution adopted by the board of
directors then in office, provided that a quorum is present. In no case
will a decrease in the number of directors shorten the term of any
incumbent director.
Upon the filing of this Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware, the directors shall be
classified, with respect to the time for which they severally hold
office, into three (3) classes to be designated Class I, Class II and
Class III. Each class of directors shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Board of Directors. The initial Class I directors shall consist
of Kathy Bronstein, Irving Teitelbaum and Edmond Thomas; the initial
Class II directors shall consist of Stephen Gross, Wilfred Posluns and
Gerald Randolph; and the initial Class III directors shall consist of
George H. Benter, Jr., Walter F. Loeb and Alan Siegel or in each case,
another person or persons who is nominated and elected instead of any
such person. The term of the initial Class I directors shall terminate
on the date of the 2000 annual meeting of stockholders. The term of the
initial Class II directors shall terminate on the date of the 1999
annual meeting of stockholders. The term of the initial Class III
directors shall terminate on the date of the 1998 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 1998,
the successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term until their
successors are elected and qualified. If the number of directors is
changed, any increase or decrease in the number of directors shall be
apportioned among the classes of directors so as to maintain the number
of directors in each class as nearly equal as possible.
Any or all of the directors may be removed with or without cause by
vote of the stockholders. Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary and
notwithstanding the fact that a lesser percentage may be permitted by
law or the By-laws of the Corporation, the affirmative vote of the
holders of at least seventy-five percent (75%) of the shares of the
Corporation entitled to vote generally for the election of directors,
voting together as a single class, each class having the number of votes
per share as provided by this Restated Certificate of Incorporation,
shall be required to remove any director from office without cause.
A-1
<PAGE>
Newly created directorships resulting from an increase in the number
of directors or vacancies occurring in the board of directors for any
reason, except the removal of directors by stockholders without cause,
may be filled by vote of a majority of the directors then in office,
even if less than a quorum exists, or may be filled by a sole remaining
director. Vacancies occurring as a result of the removal of directors by
stockholders without cause shall be filled by the stockholders. A
director elected to fill a vacancy or a newly created directorship shall
be elected to hold office until the next annual meeting of stockholders,
and such director's successor shall be elected to hold office for a term
that shall coincide with the term of the class to which such director
was elected.
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or the By-laws of the Corporation,
the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of the Corporation entitled to vote generally for
the election of directors, voting together as a single class, each class
having the number of votes per share as provided by this Restated
Certificate of Incorporation, shall be required to alter, amend or
repeal this Article IX."
2. ARTICLE IV, SECTION 4.1
Set forth below is the text of Article IV, Section 4.1 of the
Company's Certificate of Incorporation, as proposed to be amended if
Proposal # 2 is approved by the Company's stockholders:
"Section 4.1. NUMBER OF SHARES. The total number of shares which
the Corporation shall have authority to issue is SIXTY-FIVE MILLION
(65,000,000), consisting of "Common Stock" and "Preferred Stock" as
follows:
(a) PREFERRED STOCK. The total number of shares of Preferred
Stock shall be FIVE MILLION (5,000,000), having a par value of one
cent ($0.01) per share, which may be issued from time to time in one
or more series. The board of directors is hereby authorized to fix,
by resolution or resolutions providing for the issue of any such
series, the voting powers, if any, and the designation, preferences
and rights of the shares in such series, and the qualifications,
limitations or restrictions thereof, including, but not limited to,
the following:
(1) the number of shares constituting that series and the
distinctive designation thereof;
(2) the dividend rate on the shares of that series, whether
dividends shall be cumulative and, if so, from which date or
dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series;
(3) the voting rights, if any, of shares of that series in
addition to the voting rights provided by law, and the terms
of such voting rights;
(4) the terms and conditions of the conversion privileges, if
any, of shares of that series, including provision for
adjustment of the conversion rate in such events as the board
of directors shall determine;
(5) the terms and conditions of redemption, if shares of that
series shall be redeemable, including the date or dates upon
or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(6) the terms and amount of any sinking fund for the redemption
or purchase of shares of that series, if any;
A-2
<PAGE>
(7) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, and the relative rights or priority,
if any, of payment of shares of that series; and
(8) any other relative rights, preferences and limitations of
that series.
Dividends on outstanding Preferred Stock shall be declared and paid,
or set apart for payment, before any dividend shall be declared and
paid, or set apart for payment, on the Common Stock with respect to the
same dividend period.
(b) COMMON STOCK. The total number of shares of Common Stock shall
be SIXTY MILLION (60,000,000), divided into two classes designated as
Class A Common Stock and Class B Common Stock, as follows: the total
number of authorized shares of Class A Common Stock shall be FIFTY
MILLION (50,000,000), and each share of Class A Common Stock shall have
a par value of ten cents ($0.10); and the total number of authorized
shares of Class B Common Stock shall be TEN MILLION (10,000,000), and
each share of Class B Common Stock shall have a par value of ten cents
($0.10)."
3. ARTICLE X
Set forth below is the text of new ARTICLE X to be added to the Company's
Certificate of Incorporation, as proposed to be amended if Proposal # 3 is
approved by the Company's stockholders:
"ARTICLE X
BUSINESS COMBINATIONS
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or the By-laws of the Corporation,
the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of the Corporation entitled to vote generally for
the election of directors, voting together as a single class, shall be
required in order to approve or authorize any Business Combination (as
defined below) which has not been approved or authorized by at least
seventy-five percent (75%) of the directors then in office. The term
"Business Combination" as used in this Article X shall mean:
(a) any merger or consolidation of the Corporation or any subsidiary
of the Corporation with any other corporation which is required
by law to be approved or authorized by the stockholders;
(b) any sale, lease or exchange of all, or substantially all, of the
property and assets of the Corporation or any subsidiary of the
Corporation;
(c) any distribution to stockholders in partial or complete
liquidation of the assets of the Corporation or any subsidiary of
the Corporation;
(d) the issuance or transfer by the Corporation or any subsidiary of
the Corporation of any securities of the Corporation or any
subsidiary which is required by law to be approved or authorized
by the stockholders, or with respect to which stockholder
approval or authorization would be a prerequisite to the listing
on the Nasdaq Stock Market's National Market or any other
national securities exchange (each, an "Exchange") of the
securities to be issued or transferred; and
(e) any reclassification of securities or recapitalization of the
Corporation, or any merger or consolidation of the Corporation
with any of its subsidiaries, which is required by law to be
approved or authorized by the stockholders, or with respect to
which stockholder
A-3
<PAGE>
approval would be a prerequisite to the listing on an Exchange of
the securities to be issued or transferred.
Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary and notwithstanding the fact that a lesser
percentage may be permitted by law or the By-laws of the Corporation,
the affirmative vote of the holders of at least seventy-five percent
(75%) of the shares of the Corporation entitled to vote generally for
the election of directors, voting together as a single class, each class
having the number of votes per share as provided by this Restated
Certificate of Incorporation, shall be required to alter, amend or
repeal this Article X."
A-4
<PAGE>
EXHIBIT B
THE WET SEAL, INC.
1996 LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of The Wet Seal, Inc. 1996 Long-Term Incentive
Plan (the "Plan") is to strengthen The Wet Seal, Inc., a Delaware corporation
("Corporation"), by providing to employees, officers, directors, consultants and
independent contractors of the Corporation or any of its subsidiaries (including
dealers, distributors, and other business entities or persons providing services
on behalf of the Corporation or any of its subsidiaries) added incentive for
high levels of performance and unusual efforts to increase the earnings and
long-term growth of the Corporation. The Plan seeks to accomplish this purpose
by enabling specified persons to purchase or acquire shares of the Class A
Common Stock of the Corporation, stock appreciation rights or other equity based
rights thereby increasing their proprietary interest in the Corporation's
success and encouraging them to remain in the employ or service of the
Corporation. The Plan allows the issuance of stock options, stock appreciation
rights, restricted or nonrestricted awards of shares, performance grants,
certain limited rights issued in tandem with options, or any combination of the
foregoing.
2. CERTAIN DEFINITIONS. As used in this Plan, the following words and
phrases shall have the respective meanings set forth below, unless the context
clearly indicates a contrary meaning:
2.1 "BOARD OF DIRECTORS": The Board of Directors of the
Corporation.
2.2 "CAUSE": Cause shall include termination for malfeasance or
gross misfeasance in the performance of duties or conviction of illegal
activity in connection therewith or any conduct detrimental to the
interests of the Corporation. The determination of the Option Committee
with respect to whether a termination for cause has occurred shall be
final and conclusive.
2.3 "CHANGE IN CONTROL": An event consisting of any person or group
both (a) becoming the beneficial owner directly or indirectly of 20% or
more of the outstanding Shares after the effective date of the Plan and
(b) of whose beneficial share ownership exceeds the numbers of shares
owned beneficially by all directors and officers of the Corporation
(excluding shares owned beneficially by any director or officer who is
the person or a member of the group). The existence of a "group" and the
"beneficial ownership" of Shares shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934 ("Exchange Act") and
the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
2.4 "CODE": The Internal Revenue Code of 1986, as amended.
2.5 "DISABILITY": The inability to engage in any substantial
gainful activity by reasons of any medically determined physical or
mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less
than twelve months, subject to such other limitations and conditions
imposed by Code Section 22(e)(3).
2.6 "FAIR MARKET VALUE PER SHARE": The fair market value per share
of the Shares as determined by the Option Committee in good faith. The
Option Committee is authorized to make its determination as to the fair
market value per share of the Shares on the following basis: (i) if the
Shares are traded only otherwise than on a securities exchange and are
not quoted on the National Association of Securities Dealers, Inc.'s
Automated Quotation System ("NASDAQ"), but are quoted on the Over The
Counter Electronic Bulletin Board operated by NASDAQ, the greater of (a)
the average of the mean between the average daily bid and average daily
asked prices of the Shares during the thirty (30) day period preceding
the date of grant of an Option, as quoted on the Over The Counter
Electronic Bulletin Board operated by NASDAQ, or (b) the mean between the
average daily bid and average daily asked prices of the Shares on the
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date of grant, as published on such bulletin board; (ii) if the Shares
are traded only otherwise than on a securities exchange and are quoted on
NASDAQ, the greater of (a) the average of the closing transaction price
of the Shares during the thirty (30) day period preceding the date of
grant of an Option, as reported by the Wall Street Journal and (b) the
closing transaction price of the Shares on the date of grant of an
Option, as reported by the Wall Street Journal; (iii) if the Shares are
admitted to trading on a securities exchange, the greater of (a) the
average of the daily closing prices of the Shares during the ten (10)
trading days preceding the date of grant of an Option, as quoted in the
Wall Street Journal, or (b) the daily closing price of the Shares on the
date of grant of an Option, as quoted in the Wall Street Journal; or (iv)
if the Shares are traded only otherwise than as described in (i), (ii) or
(iii) above, or if the Shares are not publicly traded, the value
determined by the Option Committee in good faith based upon the fair
market value as determined by completely independent and well qualified
experts.
2.7 "INCENTIVE STOCK OPTION": An Option intended to qualify for
treatment as an incentive stock option under Code Sections 421 and 422,
and designated as an Incentive Stock Option.
2.8 "LIMITED RIGHT": A limited right granted pursuant to Section 8
of the Plan.
2.9 "NONQUALIFIED OPTION": An Option not qualifying as an
Incentive Stock Option.
2.10 "OPTION": A stock option granted under the Plan.
2.11 "OPTION AGREEMENT": The document setting forth the terms and
conditions of each Option.
2.12 "OPTION COMMITTEE": The committee selected and designated by
the Board of Directors as the "Option Committee" consisting of not less
than three (3) members of the Board of Directors all of whom are "outside
directors" within the meaning of Code Section 162(m) and the applicable
regulations and "non-employee directors" within the meaning of Rule
16b-3(b)(3) promulgated under the Exchange Act.
2.13 "OPTIONEE": The holder of an Option.
2.14 "PERFORMANCE GRANT": A performance grant granted pursuant to
Section 9 of the Plan.
2.15 "RETIREMENT": Retirement as defined by the Option Committee.
2.16 "SAR": A stock appreciation right granted pursuant to Section
7 of the Plan.
2.17 "SHARES": The shares of Class A Common Stock of the
Corporation.
2.18 "SUBSIDIARY": Any corporation within the meaning of Code
Section 424(f), or similar successor section.
3. ADMINISTRATION OF PLAN.
3.1 IN GENERAL. This Plan shall be administered by the Option
Committee. Any action of the Option Committee with respect to
administration of the Plan shall be taken pursuant to (i) a majority vote
at a meeting of the Option Committee (to be documented by minutes), or
(ii) the unanimous written consent of its members.
3.2 AUTHORITY. With the exception of any grants to members of the
Option Committee, which shall be made and administered exclusively by the
Board of Directors pursuant to the express terms of this Plan, subject to
the express provisions of this Plan, the Option Committee shall have the
authority to: (i) construe and interpret the Plan, decide all questions
and settle all controversies and disputes which may arise in connection
with the Plan and to define the terms used therein; (ii) prescribe, amend
and rescind rules and regulations relating to administration of
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the Plan; (iii) determine the purchase price of the Shares covered by
each Option, SAR, Limited Right, Performance Grant or other grant
hereunder and the method of payment of such price, individuals to whom,
and the time or times at which, an Option, SAR, Limited Right,
Performance Grant or other grant hereunder shall be granted and
exercisable and the number of Shares covered by each Option, SAR, Limited
Right, Performance Grant or other grant hereunder; (iv) determine the
terms and provisions of the respective Option Agreements (which need not
be identical) or any other written agreement evidencing any rights under
the Plan; (v) determine the duration and purposes of leaves of absence
which may be granted to participants without constituting a termination
of their employment for purposes of the Plan; and (vi) make all other
determinations necessary or advisable to the administration of the Plan.
Determinations of the Option Committee on matters referred to in this
Section 3.2 shall be conclusive and binding on all parties howsoever
concerned. With respect to Incentive Stock Options, the Option Committee
shall administer the Plan in compliance with the provisions of Code
Section 422 as the same may hereafter be amended from time to time. No
member of the Option Committee shall be liable for any action or
determination made in good faith with respect to the Plan, any Option,
SAR, Limited Right, Performance Grant, or any other right granted
hereunder.
4. ELIGIBILITY AND PARTICIPATION.
4.1 IN GENERAL. Only officers, employees and directors who are also
employees of the Corporation or any Subsidiary shall be eligible to
receive grants of Incentive Stock Options. Officers, employees and
directors of the Corporation or any Subsidiary, as well as consultants,
independent contractors or other service providers of the Corporation or
any Subsidiary shall be eligible to receive grants of Nonqualified
Options, SARs, Limited Rights, Performance Grants, or any other rights.
Within the foregoing limits, the Option Committee, from time to time,
shall determine and designate persons to whom Options, SARs, Limited
Rights, Performance Grants or any other rights may be granted. All such
designations shall be made in the absolute discretion of the Option
Committee and shall not require the approval of the shareholders, except
as expressly set forth herein. In determining (i) the number of Shares to
be covered by each of the Options, SARs, Limited Rights, Performance
Grant or any other grants, (ii) the purchase price for such Shares and
the method of payment of the purchase price (subject to the other
sections hereof), (iii) the individuals of the eligible class to whom
Options, SARs, Limited Rights, Performance Grants or any other rights
shall be granted, (iv) the terms and provisions of the respective Option
Agreements or other written agreements, and (v) the times at which such
Options, SARs, Limited Rights, Performance Grants or any other rights
shall be granted, the Option Committee shall take into account such
factors as it shall deem relevant in connection with accomplishing the
purpose of the Plan as set forth in Section 1. An individual who has been
granted an Option, SAR, Limited Right, Performance Grant or any other
rights may be granted additional Options, SARs, Limited Rights,
Performance Grants or any other rights if the Option Committee shall so
determine.
4.2 CERTAIN LIMITATIONS. The Option Committee may, in its sole
discretion, grant an Optionee Options such that the sum of (i) the
aggregate fair market value (determined at the time the Incentive Stock
Options are granted) of the Shares subject to all Options granted under
the Plan which are exercisable for the first time by such Optionee during
the same calendar year, plus (ii) the aggregate fair market value
(determined at the time the Options are granted) of all Shares subject to
all other incentive stock options granted to such Optionee after December
31, 1986 by the Corporation, its parent and Subsidiaries which are
exercisable for the first time during such calendar year, exceeds One
Hundred Thousand Dollars ($100,000). To the extent that the sum of (i)
and (ii) of this Section 4.2 does not exceed $100,000, the Optionee shall
be entitled to be granted Incentive Stock Options, and the Option
Committee shall specify whether, and to the extent, the Optionee is
granted Incentive Stock Options or Nonqualified Options. No
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Incentive Stock Options shall be granted to the extent that the sum of
(i) and (ii) of this Section 4.2 exceeds $100,000, and all Options
granted in excess shall be Nonqualified Options. The Option Committee
should be aware that Incentive Stock Options granted in excess of such
$100,000 limit will not qualify as Incentive Stock Options under the
Code, but instead will be Nonqualified Stock Options. Therefore, in
denominating Options as Incentive Stock Options the Option Committee
should carefully consider all options granted after December 31, 1986,
which were intended to be Incentive Stock Options under the Code in an
attempt to ensure that Incentive Stock Options are actually Incentive
Stock Options under the Code. The Option Agreements for Incentive Stock
Options shall contain a provision which informs the Optionee of the
$100,000 limit and that the Options may in fact not be Incentive Stock
Options under the Code to the extent that the $100,000 limit has been
exceeded.
5. AVAILABLE SHARES AND ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
5.1 SHARES. Subject to adjustment as provided in Section 5.2 below,
the total number of Shares to be subject to Options, SARs, Limited
Rights, Performance Grants or other rights granted pursuant to this Plan
shall not exceed seven hundred thousand (700,000) Shares. No employee
shall be entitled to receive rights to more than seven hundred thousand
(700,000) Shares under this Plan. Shares subject to the Plan may be
either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Corporation; the Option Committee shall be
empowered to take any appropriate action required to make Shares
available for Options granted under this Plan. If any Options, SARs,
Limited Rights, Performance Grants or other rights are surrendered before
exercise or lapse without exercise in full or for any other reason cease
to be exercisable, the Shares reserved therefore shall continue to be
available under the Plan.
5.2 ADJUSTMENTS. As used herein, the term "Adjustment Event" means
an event pursuant to which the outstanding Shares of the Corporation are
increased, decreased or changed into, or exchanged for a different number
or kind of shares or securities, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split, stock dividend, stock
consolidation or otherwise. Upon the occurrence of an Adjustment Event,
(i) appropriate and proportionate adjustments shall be made to the number
and kind of shares and exercise price for the shares subject to the
Options, SARs, Limited Rights, Performance Grants or other rights which
may thereafter be granted under the Plan, (ii) appropriate and
proportionate adjustments shall be made to the number and kind of and
exercise price for the Shares subject to the then outstanding Options,
SARs, Limited Rights, Performance Grants or other rights granted under
this Plan, and (iii) appropriate amendments to the Option Agreements, or
other agreements shall be executed by the Corporation and the Optionees
or parties if the Option Committee determines that such an amendment is
necessary or desirable to reflect such adjustments. If determined by the
Option Committee to be appropriate, in the event of an Adjustment Event
which involves the substitution of securities of a corporation other than
the Corporation, the Option Committee shall make arrangements for the
assumptions by such other corporation of any Options, SARs, Limited
Rights, Performance Grants, stock grants or other rights then or
thereafter outstanding under the Plan. Notwithstanding the foregoing,
such adjustment in outstanding Options, SARs, Limited Rights, Performance
Grants, stock grants or other rights shall be made without change in the
total exercise price applicable to the unexercised portion of the
Options, SARs, Limited Rights, Performance Grants, stock grants or other
rights, but with an appropriate adjustment to the number of shares, kind
of shares and exercise price for each share subject to the Options, SARs,
Limited Rights, Performance Grants, stock grants or other rights. The
determination by the Option Committee as to what adjustments, amendments
or arrangements shall be made pursuant to this Section 5.2, and the
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extent thereof, shall be final and conclusive. No fractional Shares shall
be issued under the Plan on account of any such adjustment or
arrangement.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 INTENDED TREATMENT AS INCENTIVE STOCK OPTIONS. Incentive Stock
Options granted pursuant to this Plan are intended to be "incentive stock
options" to which Code Sections 421 and 422 apply, and the Plan shall be
construed and administered to implement that intent. If all or any part
of an Incentive Stock Option shall not be an "incentive stock option"
subject to Sections 421 or 422 of the Code, such Option shall
nevertheless be valid and carried into effect. All Options granted under
this Plan shall be subject to the terms and conditions set forth in this
Section 6.1 (except as provided in Section 5.2) and to such other terms
and conditions as the Option Committee shall determine to be appropriate
to accomplish the purpose of the Plan as set forth in Section 1.
6.2 AMOUNT AND PAYMENT OF EXERCISE PRICE.
6.2.1 EXERCISE PRICE. The exercise price per Share for each
Share which the Optionee is entitled to purchase under a Nonqualified
Option shall be determined by the Option Committee but shall not be
less than one hundred percent (100%) of the Fair Market Value Per
Share on the date of the grant of the Nonqualified Option. The
exercise price per Share for each Share which the Optionee is
entitled to purchase under an Incentive Stock Option shall be
determined by the Option Committee but shall not be less than one
hundred percent (100%) of the Fair Market Value Per Share on the date
of the grant of the Incentive Stock Option; provided, however, that
the exercise price shall not be less than one hundred ten percent
(110%) of the Fair Market Value Per Share on the date of the grant of
the Incentive Stock Option in the case of an individual then owning
(within the meaning of Code Section 424(d)) more than ten percent
(10%) of the total combined voting power of all classes of stock of
the Corporation or of its parent or Subsidiaries.
6.2.2 PAYMENT OF EXERCISE PRICE. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the
method of payment, shall be determined by the Option Committee and
may consist of promissory notes, other Shares or such other
consideration and method of payment for the Shares as may be
permitted under applicable federal and state laws.
6.3 EXERCISE OF OPTIONS.
6.3.1 Each Option granted under the Plan shall be exercisable at
such times and under such conditions as may be determined by the
Option Committee at the time of the grant of the Option and as shall
be permissible under the terms of the Plan; provided, however, in no
event shall an Option be exercisable after the expiration of ten (10)
years from the date it is granted, and in the case of an Optionee
owning (within the meaning of Code Section 424(d)), at the time an
Incentive Stock Option is granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the
Corporation or of its parent or Subsidiaries, such Incentive Stock
Option shall not be exercisable later than five (5) years after the
date of grant.
6.3.2 An Optionee may purchase less than the total number of
Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than one hundred (100)
Shares and shall not include any fractional shares.
6.4 EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. The
effect of termination of an Optionee's employment or other relationship
with the Corporation on such Optionee's rights to acquire Shares shall be
as follows:
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6.4.1 TERMINATION FOR OTHER THAN DISABILITY, CAUSE, RETIREMENT,
OR DEATH. If an Optionee ceases to be employed by, or ceases to have
a relationship with, the Corporation for any reason other than for
Disability, Cause, Retirement, or death, such Optionee's Options
shall expire not later than three (3) months thereafter. During such
three (3) month period and prior to the expiration of the Option by
its terms, the Optionee may exercise any Option granted to him, but
only to the extent such Options were exercisable on the date of
termination of his employment or relationship and except as so
exercised, such Options shall expire at the end of such three (3)
month period unless such Options by their terms expire before such
date. The decision as to whether a termination for a reason other
than Disability, Cause, Retirement or death has occurred shall be
made by the Option Committee, whose decision shall be final and
conclusive, except that employment shall not be considered terminated
in the case of sick leave or other bona fide leave of absence
approved by the Corporation.
6.4.2 TERMINATION FOR DISABILITY OR DEATH. If an Optionee
ceases to be employed by, or ceases to have a relationship with, the
Corporation by reason of Disability or death, such Optionee's Options
shall become fully vested and exercisable and shall expire not later
than one (1) year thereafter. During such one (1) year period and
prior to the expiration of the Option by its terms, the Optionee, or
his executor or administrator or the person or persons to whom the
Option is transferred by will or the applicable laws of descent and
distribution, may exercise any Option granted to him or her, and
except as so exercised, such Options shall expire at the end of such
one (1) year period unless such Options by their terms expire before
such date. The decision as to whether a termination by reason of
Disability has occurred shall be made by the Option Committee, whose
decision shall be final and conclusive.
6.4.3 RETIREMENT OF AN OPTIONEE. If the Optionee ceases to be
employed by, or ceases to have a relationship with, the Corporation
by reason of Retirement, such Optionee's Options shall become fully
vested and exercisable and shall expire not later than two (2) years
thereafter. During such two (2) year period and prior to the
expiration of the Options by their terms, such Options may be
exercised by Optionee. The decision as to
whether a termination by reason of Retirement has occurred shall be
made by the Option Committee, whose decision shall be final and
conclusive.
6.4.4 TERMINATION FOR CAUSE. If an Optionee's employment by, or
relationship with, the Corporation is terminated for Cause, such
Optionee's Option shall expire immediately; provided, however, the
Option Committee may, in its sole discretion, within thirty (30) days
of such termination, waive the expiration of the Option by giving
written notice of such waiver to the Optionee at such Optionee's last
known address. In the event of such waiver, the Optionee may exercise
the Option only to such extent, for such time, and upon such terms
and conditions as if such Optionee had ceased to be employed by, or
ceased to have a relationship with, the Corporation upon the date of
such termination for a reason other than Disability, Cause,
Retirement or death.
6.5 WITHHOLDING OF TAXES. As a condition to the exercise, in whole
or in part, of any Options the Option Committee may in its sole
discretion require the Optionee to pay, in addition to the purchase price
of the Shares covered by the Option an amount equal to any federal, state
or local taxes that may be required to be withheld in connection with the
exercise of such Option. Alternatively, the Corporation may issue or
transfer the Shares pursuant to exercise of the Option net of the number
of Shares sufficient to satisfy the withholding tax requirements. For
withholding tax purposes, the Shares shall be valued on the date the
withholding obligation is incurred.
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6.6 NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing
contained in the Plan or in any Option Agreement shall obligate the
Corporation to employ or have another relationship with any Optionee for
any period or interfere in any way with the right of the Corporation to
reduce such Optionee's compensation or to terminate the employment of or
relationship with any Optionee at any time.
6.7 TIME OF GRANTING OPTIONS. The time an Option is granted,
sometimes referred to herein as the date of grant, shall be the day the
Corporation executes the Option Agreement; provided, however, that if
appropriate resolutions of the Option Committee indicate that an Option
is to be granted as of and on some prior or future date, the time such
Option is granted shall be such prior or future date.
6.8 PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall be entitled to
the privileges of stock ownership as to any Shares not actually issued
and delivered to such Optionee. No Shares shall be purchased upon the
exercise of any Option unless and until, in the opinion of the
Corporation's counsel, any then applicable requirements of any laws or
governmental or regulatory agencies having jurisdiction and of any
exchanges upon which the stock of the Corporation may be listed shall
have been fully complied with.
6.9 SECURITIES LAWS COMPLIANCE. The Corporation will diligently
endeavor to comply with all applicable securities laws before any Options
are granted under the Plan and before any Shares are issued pursuant to
Options. Without limiting the generality of the foregoing, the
Corporation may require from the Optionee such investment representation
or such agreement, if any, as counsel for the Corporation may consider
necessary or advisable in order to comply with the Securities Act of 1933
as then in effect, and may require that the Optionee agree that any sale
of the Shares will be made only in such manner as is permitted by the
Option Committee. The Option Committee in its discretion may cause the
Options and Shares underlying the Options to be registered under the
Securities Act of 1933, as amended, by the filing of a Form S-8
Registration Statement covering the Options and Shares underlying such
Options. Optionee shall take any action reasonably requested by the
Corporation in connection with registration or qualification of the
Shares under federal or state securities laws.
6.10 OPTION AGREEMENT. Each Incentive Stock Option and Nonqualified
Option granted under this Plan shall be evidenced by the appropriate
written Stock Option Agreement ("Option Agreement") executed by the
Corporation and the Optionee containing each of the provisions and
agreements specifically required to be contained therein pursuant to this
Section 6, and such other terms and conditions as are deemed desirable by
the Option Committee and are not inconsistent with the purpose of the
Plan as set forth in Section 1.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS ("SARS").
7.1 Subject to the other applicable provisions of the Plan, the Option
Committee shall have the authority to grant SARs to any Optionee, either at
the time of grant of an Option or thereafter by amendment to an Option. The
exercise of an Option shall result in an immediate cancellation of its
corresponding SAR, and the exercise of an SAR shall cause an immediate
cancellation of its corresponding Option. SARs shall be subject to such
other terms and conditions as the Option Committee may specify. An SAR shall
expire at the same time as the related Option expires and shall be
transferable only when, and under the same conditions as, the related Option
is transferable.
An SAR shall be exercisable only when, to the extent and on the
condition that the related Option is exercisable. No SAR may be exercised
unless the Fair Market Value Per Share of Common Stock of the Corporation on
the date of exercise exceeds the exercise price of the related Option.
Upon the exercise of an SAR, the Optionee shall be entitled to receive
an amount equal to the difference between the Fair Market Value Per Share on
the date of exercise and the exercise price of
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the Option to which the SAR corresponds. The Option Committee shall decide
whether such payment shall be in cash, in shares or in a combination
thereof.
All SARs will be exercised automatically to the extent the related
Option is then exercisable at the end of the last business day prior to the
expiration date of the related Option at the end of its stated term or
following the death, Disability or Retirement of the participant or the
termination of the participant's employment by the Company for any reason
other than Cause, so long as the Fair Market Value Per Share of the
Company's Common Stock on that date exceeds the exercise price of the
related Option.
8. TERMS AND CONDITIONS OF LIMITED RIGHTS
Subject to the other applicable provisions of the Plan, the Option
Committee shall have authority to grant Limited Rights with respect to all
or some of the Shares covered by an Option at the time the Option is granted
or by amendment to an Option previously granted.
A Limited Right shall be exercisable only during the sixty (60) day
period which begins on the date of a Change in Control or, if stated in the
Limited Right grant, upon the occurrence of an event described in Section
5.2.
Any Limited Right not exercised as provided herein shall terminate
unless otherwise determined by the Option Committee. The termination of a
Limited Right shall not affect the related Option.
Upon exercise of a Limited Right, the holder shall be entitled to
receive from the Corporation, for each Limited Right being exercised, in
cash, an amount equal to the difference between the Fair Market Value Per
Share on the exercise and grant dates.
If a holder of Limited Rights ceases to be employed by the Corporation
for any reason, his or her unexercised Limited Rights shall expire at the
time the related Option expires or is exercised. Upon exercise of a Limited
Right the related Option shall cease to be exercisable. Upon exercise or
termination of an Option, any related Limited Rights shall terminate. A
Limited Right granted in relation to an Incentive Stock Option shall comply
with the requirements of Section 422 of the Code and the applicable
regulations.
9. TERMS AND CONDITIONS OF PERFORMANCE GRANTS
Subject to the other applicable provisions of the Plan, Performance
Grants may be awarded to participants at any time and from time to time as
determined by the Option Committee. The Option Committee shall have complete
discretion in determining the size and composition of Performance Grants
issued to a participant and the appropriate period over which performance is
to be measured ("performance cycle"). Performance Grants may include (i)
specific dollar-value target grants, (ii) performance units, the value of
each such unit being determined by the Option Committee at the time of
issuance, and/or (iii) performance shares, the value of each such share
being equal to the Fair Market Value Per Share.
The value of each Performance Grant may be fixed or it may be permitted
to fluctuate based on a performance factor (e.g., net earnings) selected by
the Option Committee. The Option Committee shall establish performance
goals, that, depending on the extent to which they are met, will determine
the ultimate value of the Performance Grant or the portion of such
Performance Grant earned by participants, or both.
The Option Committee shall establish performance goals and objectives
for each performance cycle on the basis of such criteria and objectives as
the Option Committee may select from time to time. During any performance
cycle, the Option Committee shall have the authority to adjust the
performance goals and objectives for such cycle for such reasons as it deems
equitable.
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The Option Committee shall determine the portion of each Performance
Grant that is earned by a participant on the basis of the Corporation's
performance over the performance cycle in relation to the performance goals
for such cycle. The earned portion of a Performance Grant may be paid out in
restricted or nonrestricted shares, cash or a combination of both as the
Option Committee may determine.
A participant must be an employee of the Corporation at the end of the
performance cycle in order to be entitled to payment of a Performance Grant
issued in respect of such cycle; provided, however, that as otherwise
determined by the Option Committee, if a participant ceases to be an
employee of the Corporation upon the occurrence of his or her death,
Retirement, or Disability prior to the end of the performance cycle, the
participant shall earn a proportionate portion of the Performance Grant
based upon the elapsed portion of the performance cycle and the
Corporation's performance over that portion of such cycle.
The Option Committee shall have the discretion to determine the minimum
portion (if any) of the Performance Grant that a participant may earn in the
event of a Change in Control prior to the end of the performance cycle. The
Option Committee shall give due consideration to the participant's
established target award, the elapsed portion of the performance cycle, the
Corporation's performance over that portion of the cycle, and such other
factors deemed relevant by the Option Committee.
In the event of a Change in Control a participant shall earn no less
than the portion of the Performance Grant that the participant would have
earned if the performance cycle(s) had terminated as of the date of the
Change in Control.
10. TERMS AND CONDITIONS OF RESTRICTED AND NONRESTRICTED SHARE AWARDS.
Subject to the other applicable provisions of the Plan, the Option
Committee may at any time and from time to time award Shares to such
participants and in such amounts as it determines. Each award of Shares
shall specify the applicable restrictions, if any, on such Shares, the
duration of such restrictions, and the time or times at which such
restrictions shall lapse with respect to all or a specified number of Shares
that are part of the award. Notwithstanding the foregoing, the Option
Committee may reduce or shorten the duration of any restriction applicable
to any Shares awarded to any participant under the Plan.
Restricted Shares may be issued at the time of award subject to
forfeiture if the restrictions do not lapse or upon lapse of the
restrictions. If Shares are issued at the time of the award, the participant
will be required to deposit the certificates with the Corporation during the
period of any restriction thereon and to execute a blank stock power
therefor. Except as otherwise provided by the Option Committee, during such
period of restriction the participant shall have all of the rights of a
holder of Shares (including but not limited to dividends), and to vote. If
Shares are issued upon lapse of restrictions, the Option Committee may
provide that the participant will be entitled to receive any amounts per
share pursuant to any dividend or distribution paid by the Corporation on
its Shares to stockholders of record after the award and prior to the
issuance of the Shares.
Except as otherwise provided by the Option Committee, on termination of
a grantee's employment due to death, Disability, Retirement or a Change in
Control during any period of restriction, all restrictions on Shares awarded
to such grantee shall lapse. On termination of a grantee's employment for
any other reason, all restricted Shares subject to awards made to such
grantee shall be forfeited to the Company.
11. PLAN AMENDMENT AND TERMINATION.
11.1 AUTHORITY OF OPTION COMMITTEE. The Option Committee may at any
time discontinue granting Options, Shares, SARs, Limited Rights,
Performance Grants, or other rights under the Plan or otherwise suspend,
amend or terminate the Plan and may, with the consent of an
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Optionee or grantee, make such modification of the terms and conditions
of such Option or grant as it shall deem advisable. An amendment or
modification made pursuant to the provisions of this Section 11.1 shall
be deemed adopted as of the date of the action of the Option Committee
effecting such amendment or modification and shall be effective
immediately, unless otherwise provided therein, subject to approval
thereof (i) within twelve (12) months before or after the effective date
by shareholders of the Corporation holding not less than a majority vote
of the voting power of the Corporation voting in person or by proxy at a
duly held shareholders meeting when required to maintain or satisfy the
requirements of Code Section 422 with respect to Incentive Stock Options,
or Code Section 162(m) with respect to performance-based compensation,
(ii) by any appropriate governmental agency, or (iii) when required by a
securities exchange or automated quotation system. No Option may be
granted during any suspension or after termination of the Plan.
11.2 TEN (10) YEAR MAXIMUM TERM. Unless previously terminated by
the Option Committee, this Plan shall terminate on August 22, 2006, and
no Options, SARs, Limited Rights, Performance Grants, or other rights
shall be granted under the Plan thereafter.
11.3 EFFECT ON OUTSTANDING RIGHTS. Amendment, suspension or
termination of the Plan shall not, without the consent of the Optionee,
alter or impair any rights or obligations under any Option or other
rights theretofore granted.
12. EFFECTIVE DATE OF PLAN. This Plan shall be effective as of August 22,
1996, the date the Plan was adopted by the Board of Directors. The Option
Committee shall be authorized and empowered to make grants pursuant to this Plan
prior to such approval of this Plan by the Corporation's shareholders; provided,
however, that such grants shall be made subject to, and conditioned upon, such
shareholder approval and if the Plan is not approved by the holders of a
majority of the Shares present in person or by proxy and entitled to vote at the
Corporation's 1996 Annual Meeting of Shareholders, the Plan and all grants made
hereunder shall be void.
13. MISCELLANEOUS PROVISIONS.
13. NONTRANSFERABILITY OF RIGHTS. All Options, SARs, Limited
Rights, Performance Grants, and other rights granted under the Plan shall
be nontransferable, either voluntarily or by operation of law, otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during the grantee's lifetime only by such grantee.
13.2 LIMITATION ON BENEFITS. No Option, SAR or Limited Right may be
exercised, no share award will vest and no Performance Grant will be paid
to the extent such exercise, vesting or payment will create an "excess
parachute payment" as defined in Section 280G of the Code.
13.3 EXCULPATION AND INDEMNIFICATION. The Corporation shall
indemnify and hold harmless the Option Committee from and against any and
all liabilities, costs and expenses incurred by such persons as a result
of any act, or omission to act, in connection with the performance of
such persons' duties, responsibilities and obligations under the Plan,
other than such liabilities, costs and expenses as may result from the
gross negligence, bad faith, willful conduct and/or criminal acts of such
persons.
13.4 GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of California and the Code.
13.5 COMPLIANCE WITH APPLICABLE LAWS. The inability of the
Corporation to obtain from any regulatory body having jurisdiction the
authority deemed by the Corporation's counsel to be necessary to the
lawful issuance and sale of any Shares upon the exercise of an Option
shall relieve the Corporation of any liability in respect of the
non-issuance or sale of such Shares as to which such requisite authority
shall not have been obtained.
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13.6 NON-UNIFORM DETERMINATIONS. The Option Committee's
determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and
timing of such awards, the terms and provisions of such awards and the
agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards
under the Plan, whether or not such persons are similarly situated.
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