<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X] [ ] Confidential, for Use of
Filed by a party other than the Registrant [ ] the Commission Only (as
Check the appropriate box: permitted by Rule
[ ] Preliminary Proxy Statement 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
SOLO SERVE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, Preferred Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
<PAGE> 2
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
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<PAGE> 3
SOLO SERVE CORPORATION
June 1, 1998
Dear Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Solo Serve Corporation to be held on Wednesday, July 15, 1998,
at 10:00 a.m., at the San Antonio Airport Hilton Hotel, located at 611 N. W.
Loop 410, San Antonio, Texas 78216. We hope that you will be able to attend the
meeting. Matters on which action will be taken at the meeting are explained in
more detail in the Notice and Proxy Statement accompanying this letter.
Whether or not you expect to be present and regardless of the number of
shares you own, please mark, sign and mail the enclosed proxy in the envelope
provided as soon as possible. If you attend the meeting, you may revoke your
proxy and vote in person.
Thank you for your support and we hope to see you at the meeting.
Robert J. Grimm
Chairman of the Board
<PAGE> 4
SOLO SERVE CORPORATION
1610 Cornerway Blvd.
San Antonio, Texas 78219
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 15, 1998
To the Stockholders of
Solo Serve Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Solo
Serve Corporation (the "Company") will be held at the San Antonio Airport Hilton
Hotel, located at 611 N. W. Loop 410, San Antonio, Texas 78216, on Wednesday,
July 15, 1998 at 10:00 a.m., local time, for the following purposes:
(1) To elect seven (7) members of the Board of Directors;
(2) To amend the Company's 1995 Incentive Stock Option
Plan (the "Incentive Plan") to increase the number of shares of common
stock, par value $.01 per share ("Common Stock"), of the Company
available for grant pursuant to the Incentive Plan;
(3) To ratify the appointment of Ernst & Young LLP as the
auditors for the Company for the fiscal year ended January 30, 1999;
and
(4) To transact such other business as may properly come
before the meeting or any adjournments thereof.
In accordance with the By-Laws of the Company, by resolution the Board
of Directors has fixed the record date for the meeting at May 22, 1998. Only
stockholders of record holding shares of Common Stock or shares of preferred
stock, par value $.01 per share, of the Company, at the close of business on
that date will be entitled to vote at the meeting or any adjournment thereof.
Stockholders who do not expect to attend the meeting in person are
urged to sign the enclosed proxy and return it promptly to the Company. A return
envelope is enclosed for that purpose.
By Order of the Board of Directors
Ross E. Bacon
Secretary
Dated: June 1, 1998
<PAGE> 5
SOLO SERVE CORPORATION
1610 Cornerway Blvd.
San Antonio, Texas 78219
PROXY STATEMENT
-----------------------
The accompanying Proxy is solicited by the Board of Directors of Solo
Serve Corporation, a Delaware corporation (the "Company"), to be voted at the
1998 Annual Meeting of Stockholders of the Company (the "Annual Meeting") to be
held on July 15, 1998 and at any adjournments thereof. The meeting will be held
at the San Antonio Airport Hilton Hotel, located at 611 N.W. Loop 410, San
Antonio, Texas 78216. The Company will bear the cost of the solicitation of
proxies, which is expected to be made by mail. This Proxy Statement and the
accompanying Proxy are first being mailed to stockholders of the Company on or
about June 1, 1998.
VOTING AND PROXIES
Only holders of record of shares of common stock, par value $.01 per
share ("Common Stock"), and shares of preferred stock, par value $.01 per share
("Preferred Stock"), of the Company at the close of business on May 22, 1998
shall be entitled to vote at the meeting. There were 3,565,812 shares of Common
Stock and 679,203 shares of Preferred Stock issued and outstanding on the record
date. Stockholders of the Company are entitled to one vote for each share of
Common Stock, or, in the case of shares of Preferred Stock, one vote for each
share of Preferred Stock, held as of the record date. Any stockholder of the
Company giving a proxy has the power to revoke the same at any time prior to its
use by giving notice in person or in writing to the Secretary of the Company.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of capital stock of the Company, including shares of
Common Stock and Preferred Stock, is necessary to constitute a quorum at the
Annual Meeting and any adjournment thereof. Assuming the presence of a quorum,
the affirmative vote of the holders of a majority of outstanding shares of
capital stock present at the meeting, in person or by proxy, voting together as
a single class, is necessary for the election of directors, approval of the
proposed amendments to the 1995 Incentive Stock Option Plan (the "Incentive
Plan"), and/or ratification of the Company's independent auditors.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the meeting. A quorum for
the transaction of business at the Annual Meeting requires representation, in
person or by proxy, of a majority of the issued and outstanding shares of
capital stock of the Company. The inspectors of election will treat abstentions
and broker non-votes as shares that are present for purposes of determining the
presence of a quorum. Abstentions are
<PAGE> 6
present and entitled to vote for purposes of determining the approval of any
matter submitted to the stockholders for a vote. If a broker indicates on a
proxy that it does not have the discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
ITEM 1: ELECTION OF DIRECTORS
The By-Laws of the Company provide that the number of directors which
shall constitute the whole board shall be fixed and determined from time to time
by resolution adopted by the Board of Directors. Presently there are five (5)
members of the Board, divided into three classes. Pursuant to resolution of the
Board of Directors, at the Annual Meeting, seven (7) directors are to be
elected. Mr. Reynolds and Mr. Seiler are presently serving as directors of the
Company. Mr. Reynolds and Mr. Gottsman, if elected, will serve as Class I
directors and hold office until the 1999 Annual Meeting of Stockholders and
until their respective successors are elected and qualified. Mr. Seiler, Mr.
Bacon and Dr. Taylor, if elected, will serve as Class II directors and hold
office until the 2000 Annual Meeting of Stockholders and until their respective
successors are elected and qualified. Mr. Siegel and Ms. Richardson, if elected,
will serve as Class III directors and hold office until the 2001 Annual Meeting
of Stockholders and until their respective successors are elected and qualified.
Mr. Robert J. Grimm and Mr. Walter H. Teninga are not standing for
re-election as members of the Board of Directors at the Annual Meeting.
The proxies named in the accompanying Proxy, who have been designated
by the Board of Directors, intend to vote for the above nominees for election as
director, unless otherwise directed. Certain information concerning such
nominees and the other directors, including all positions with the Company and
principal occupations during the last five years, is set forth below:
Stephen P. Reynolds, age 46, has been a director of the Company since
1981. Mr. Reynolds has been a General Partner of General Atlantic Partners since
its formation in 1989, prior to which time he was the Treasurer of General
Atlantic Corporation, a Delaware corporation ("GAC"). Mr. Reynolds is a member
of the board of directors of several privately-held companies in which General
Atlantic Partners, GAC, or one of their affiliates is an investor. Mr. Reynolds
is a member of the board of directors of Brigham Exploration Company, Computer
Learning Centers, Inc. and SS & C Technologies, Inc.
John C. Seiler, age 62, has been a director of the Company since May
1988. Mr. Seiler was Vice President of Associated Dry Goods from 1972 to 1981,
serving as Chairman and Chief Executive Officer of that company's Stewart Dry
Goods Division (Louisville, KY) from 1974-1981. Mr. Seiler has maintained a
retail consulting business, owned retail stores in Louisville (Ports
International -- TABI International, 1982-1988), and served on the board of
directors of Citizens Fidelity Bank and Trust
-2-
<PAGE> 7
Co. (1974-1989), Maker's Mark Distillery (1976-1981), and Duty Free Shoppers
Limited (1982-1986).
Charles M. Siegel, age 59, became employed by the Company in August
1996 as President and Chief Executive Officer. He joined the Company as a
full-time consultant and Acting Chief Operating Officer in early July 1996.
Prior to joining the Company, Mr. Siegel was President, Chairman and Chief
Executive Officer of 50-Off Stores, Inc., which in 1988 became the successor
organization to Shoppers World stores, for which Mr. Siegel was a member of the
founding executive group in 1975.
Ross E. Bacon, age 53, became employed by the Company in July 1996 as
Executive Vice President, Chief Financial Officer and Chief Operating Officer.
Prior to joining the Company, Mr. Bacon was an independent financial consultant.
From 1993 to 1994, Mr. Bacon was Vice President and Chief Financial Officer of
Telecommunication Management, Inc. Prior to his employment with
Telecommunication Management, Inc., from 1992 to 1993 Mr. Bacon was Vice
President and Chief Financial Officer of Flowers to Go, Inc.
Dr. Charles A. Taylor, 47, is the President of St. Philips College in
San Antonio, Texas. Prior to his employment with St. Philips College, Mr. Taylor
was Vice President of Kellogg Community College in Battle Creek, Michigan from
1987 to 1995.
Christine Jo Richardson, 34, is President and Chairman of the Board of
Corporate Travel Planners, Inc., in San Antonio, Texas, a company she founded in
1991.
Charles L. Gottsman, 51, is President of Aetna Sign Group, Ltd. a
company he founded in 1980.
INFORMATION CONCERNING DIRECTORS
During the fiscal year ended January 31, 1998, the Board of Directors
held eleven (11) meetings. All directors attended more than seventy five percent
(75%) of these meetings. The Board of Directors also adopted resolutions by
unanimous written consent on six (6) occasions.
None of the directors, nominees for director, or the executive officers
of the Company has a family relationship with any of the other executive
officers or other nominees for director. Except for Mr. Teninga, who is a
director of Great Lakes REIT and Developers Diversified Realty Corporation, and
Mr. Reynolds, who is a director of Brigham Exploration Company, Computer
Learning Centers, Inc., and SS & C Technologies, Inc., none of the directors or
nominees is a director of any other company which has a class of securities
registered under, or is required to file reports under, the Securities Exchange
Act of 1934 or of any company registered under the Investment Company Act of
1940.
-3-
<PAGE> 8
Section 16(a) Beneficial Ownership Reporting Compliance
Except as set forth in this paragraph, the Company believes, based
solely on its review of the copies of Section 16(a) forms furnished to the
Company and written representations from executive officers and directors, that
all Section 16(a) filing requirements have been fulfilled. Messrs. Grimm,
Reynolds, Seiler and Teninga each filed a Form 5 for transactions with respect
to the fiscal year ended January 31, 1998 on April 16, 1998, which was
twenty-nine (29) days after the date such report was due to be filed. Terry
Lalosh and Mark J. Blankenship each filed a Form 3 for a transaction occurring
on March 17, 1998 on April 20, 1998, which was twenty-four (24) days after the
date such report was due to be filed.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors, which consists of
Messrs. Reynolds, Seiler and Teninga, met one (1) time during the fiscal year
ended January 31, 1998. The functions of the Audit Committee are to recommend
the appointment of the Company's independent auditors, to review the
arrangements for and the scope and results of the annual audit and to review
internal accounting controls.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Grimm, Reynolds, Seiler and Teninga, did not meet separately as a
committee during the fiscal year ended January 31, 1998. The functions of the
Compensation Committee are to review and make recommendations concerning the
compensation of officers and other management personnel.
The Stock Option Committee of the Board of Directors, which consists of
Messrs. Reynolds and Seiler, did not meet separately as a committee during the
fiscal year ended January 31, 1998. The function of the Option Committee is to
administer the Solo Serve Corporation 1995 Incentive Stock Option Plan.
The Board of Directors does not have a standing nominating committee or
a committee which performs similar functions.
SECURITIES HOLDINGS OF PRINCIPAL STOCKHOLDERS,
DIRECTORS, NOMINEES AND OFFICERS
Based upon information received from the persons concerned, each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding shares of capital stock of the Company, each director and nominee
for director, each of the named executive officers, and all directors and
executive officers of the Company as a group, owned beneficially as of May 22,
1998, the number and percentage of outstanding shares of capital stock of the
Company indicated in the following table. Except as noted below, each of the
persons listed has sole investment and voting power with respect to the shares
indicated and the address of each of the persons listed is c/o the Company.
-4-
<PAGE> 9
Beneficial Ownership
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage Number of Shares Percentage
Beneficial Owner of Common Stock (1) Common Stock of Preferred Stock (1) Preferred Stock
---------------- ------------------- ------------ ------------------- ---------------
<S> <C> <C> <C> <C>
General Atlantic Corporation (2) 679,203 (3) 16% (3) 679,203 100%
125 E. 56th Street
New York, NY 10022
Robert J. Grimm (4) 66,000 1.9% 0 0%
Charles M. Siegel (5) 1,115,000 30.4% 0 0%
1403 Fortune Hill
San Antonio, Texas 78258
Ross E. Bacon (6) 366,562 10.1% 0 0%
2279 Encino Loop
San Antonio, Texas 78259
Terry Lalosh (7) 328,562 9.2% 0 0%
105 Ponca Bend
San Antonio, Texas 78231
Mark J. Blankenship (8) 349,971 9.8% 0 0%
733 Patterson Ave.
San Antonio, Texas 78209
Stephen P. Reynolds (9) 16,000 * 0 0%
John C. Seiler (10) 18,500 * 0 0%
All Executive Officers and 2,260,595 59.7% 0 0%
Directors as a group (7
persons)(11)
</TABLE>
- -----------
* less than 1%
(1) Unless otherwise indicated, all shares are held directly with sole voting
and investment power.
(2) General Atlantic Corporation ("GAC") is a Delaware corporation whose
principal business is holding and managing investments for its own
account. The shares directly owned by GAC are deemed to be beneficially
owned by GAC's direct and indirect controlling stockholders. GAC is,
through a number of intermediary holding companies, a wholly-owned
subsidiary of General Atlantic Group Limited, a Bermuda corporation,
whose principal business is holding and managing investments for its own
account. The address of General Atlantic Group Limited is Washington Mall
II, Church Street, Hamilton 5, Bermuda. General Atlantic Group Limited
is, through an intermediate holding company, a wholly-owned subsidiary of
The Atlantic Foundation, a Bermuda grant-making, charitable corporation.
The address of The Atlantic Foundation is P. O. Box HM 666, Clarendon
House, Church Street, Hamilton, HM CX, Bermuda. No natural person
beneficially owns the securities owned by The Atlantic Foundation.
(3) Includes 679,203 shares of Preferred Stock, each of which is convertible
into a share of Common Stock, and votes on a share-for-share basis with
the shares of Common Stock.
(4) Includes 16,000 shares issuable upon exercise of stock options, and does
not include options to purchase 4,000 shares of Common Stock, none of
which are exercisable within 60 days
(5) Includes 100,000 shares issuable upon exercise of stock options, all of
which are vested.
(6) Includes 50,000 shares issuable upon exercise of stock options, all of
which are vested.
(7) Includes 12,000 shares issuable upon exercise of stock options, and does
not include options to purchase 4,000 shares of Common Stock, none of
which are exercisable within 60 days.
(8) Includes 12,000 shares issuable upon exercise of stock options, and does
not include options to purchase 4,000 shares of Common Stock, none of
which are exercisable within 60 days.
(9) Includes 16,000 shares issuable upon exercise of stock options, and does
not include options to purchase 4,000 shares of Common Stock, none of
which are exercisable within 60 days.
(10) Includes 16,000 shares issuable upon exercise of stock options, and does
not include options to purchase 4,000 shares of Common Stock, none of
which are exercisable within 60 days.
(11) Includes 222,000 shares issuable upon exercise of stock options, and does
not include options to purchase 20,000 shares of Common Stock, none of
which are exercisable within 60 days.
-5-
<PAGE> 10
Change of Control
In October 1997 and March 1998 certain members of Company management
(the "Management Holders") acquired a total of 1,964,686 shares of the Company's
Common Stock from General Atlantic Corporation, a Delaware corporation ("GAC").
This represented all of GAC's shares of Common Stock and 709,686 of its shares
of Preferred Stock, which were converted into shares of Common Stock at the time
of the sale. GAC continues to own 679,203 shares of the Company's Preferred
Stock, which represents 16.0% of the aggregate voting stock of Solo Serve and
all of the Company's issued and outstanding shares of Preferred Stock.
In connection with the acquisition of shares of capital stock of the
Company by the Management Holders, GAC and the Management Holders entered into a
Stockholders Agreement (the "Stockholders Agreement"). The Stockholders
Agreement provides that no party thereto will sell, exchange, transfer or
otherwise dispose of shares of the Company's Common Stock or Preferred Stock
owned by such stockholder without the prior written consent of the other parties
thereto and no party will exercise incentive stock options or other rights to
acquire capital stock or will otherwise acquire capital stock of the Company
without the prior written consent of the others. The Stockholders Agreement
provides that the certificates representing shares of capital stock of the
Company currently held by the parties, as well as any additional shares issued
to the parties, shall each bear a legend evidencing the existence of the
Stockholders Agreement and the restrictions upon transfer contained therein. The
Stockholders Agreement terminates on March 17, 2001 unless terminated earlier or
extended by agreement of all parties.
See "Certain Transactions."
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<PAGE> 11
EXECUTIVE COMPENSATION
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors was comprised
during the fiscal year ended January 31, 1998 of Robert J. Grimm, Stephen P.
Reynolds, John C. Seiler and Walter A. Teninga. The Committee is responsible for
establishing policies and administering programs relating to the compensation of
senior executives of the Company. The Committee's decisions and recommendations
are reviewed by the full Board of Directors. A separate Stock Option Committee
of the Board of Directors, consisting of Stephen P. Reynolds and John C. Seiler,
administers the Incentive Plan. Historically, the Compensation Committee and
Board of Directors have considered stock options to be an important part of
executive compensation.
Compensation Policy
The goal of the Company's executive compensation policy is to ensure
that executive compensation is aligned with the enhancement of long-term
stockholder value through:
o Attracting, developing and retaining highly qualified and
motivated individuals.
o Providing compensation levels that are competitive with the
Company's industry and geography, and that fairly and equitably
reflect the individual's contributions to the Company.
o Directly relating individual compensation to Company performance
and the attainment of individual objectives.
o Emphasizing equity incentives to ensure a commonality of interest
of individuals with stockholders.
The principal components of executive compensation are base salary, annual
incentive bonuses, stock options and various employee benefits (including
medical and life insurance and 401(k) plan benefits available to all employees
of the Company). Each year the Committee reviews the elements of compensation to
ensure that the total compensation structure meets the objectives outlined
above.
Base Salary
The Committee reviews each executive officer's base salary annually. In
determining appropriate salary levels for each executive, the Committee
considers level and scope of responsibility, compensation levels for similar
executives of companies comparable in size and industry, fairness with respect
to the base salary of other executives with the Company, and individual
performance and attainment of personal goals. Assessment of individual
performance and attainment of personal goals include
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<PAGE> 12
both aspects which are measurable by financial accounting tools and
non-measurable aspects such as development and execution of strategic plans,
execution of operational functions, development of employees and leadership with
the Company. Messrs. Siegel, Bacon, Lalosh and Blankenship are the only Company
executives whose base salaries are contractually set.
Incentive Compensation
Each year the Company establishes an annual incentive bonus plan in
which all of the Company's senior executives are eligible to participate,
pursuant to which individual bonuses are determined by the Company's net income.
Each individual has a target bonus amount which is paid if the Company achieves
its targeted net income. The Board of Directors sets the target net income
amount annually. The specific objective of the program is to incentivize the
management team to create consistently higher net income. For the fiscal year
ended January 31, 1998, since targeted net income levels were not achieved, no
bonuses were paid pursuant to this bonus plan. For the fiscal year ended January
31, 1998, Mr. Siegel was paid a bonus pursuant to his employment agreement.
After the end of the fiscal year ended January 31, 1998, the Company
entered into employment agreements with each of Messrs. Siegel, Bacon, Lalosh
and Blankenship. Messrs. Siegel, Bacon, Lalosh and Blankenship are all eligible
for certain incentive compensation as more specifically described in their
respective employment agreements.
See "Agreements Relating to Employment."
Incentive Stock Options
The Committee believes that equity incentives are a critically
important component of executive compensation and ensure commonality of
interests between management and stockholders. The Company has established the
Incentive Plan, which is administered by a Stock Option Committee. Stock option
grants have been made to senior executives based on their position in the
Company and ability to impact the Company's growth. The Board believes that
periodic grants of stock options have played an important role in attracting and
retaining the Company's current management team.
Deductibility of Compensation
In 1993, the federal tax laws were amended to limit the deduction a
publicly-held company is allowed for compensation paid in 1994 and thereafter to
the chief executive officer and to the four most highly compensated executive
officers other than the chief executive officer. Generally, amounts paid in
excess of $1 million to a covered executive, other than performance-based
compensation, cannot be deducted. In order to constitute performance-based
compensation for purposes of the new tax law, the
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<PAGE> 13
performance measures must be approved by the stockholders. The Committee will
consider ways to maximize the deductibility of executive compensation, while
retaining the discretion the Committee deems necessary to compensate executive
officers in a manner commensurate with performance and the competitive
environment for executive talent.
Members of the Compensation Committee
Robert J. Grimm
Stephen P. Reynolds
John C. Seiler
Walter H. Teninga
Members of the Stock Option Committee
Stephen R. Reynolds
John C. Seiler
Compensation Summary
The following table sets forth a summary of compensation for the fiscal
years ended February 3, 1996, February 1, 1997 and January 31, 1998 paid by the
Company to Charles M. Siegel, the President and Chief Executive Officer of the
Company, and the Company's three most highly compensated executive officers for
the fiscal year ended January 31, 1998. The Company did not have any executive
officers other than Messrs. Siegel, Bacon, Lalosh and Blankenship whose total
annual salary and bonus exceeded $100,000 for the fiscal year ended January 31,
1998.
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<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------------------- ------------------ -------------
Other
Name Annual Restricted All Other
and Compen- Stock Stock LTIP Compen-
Principal Fiscal sation Award(s) Options Payouts sation
Position year Salary ($) Bonus ($) ($) ($) (Shares) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------- --------- ---------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles M. Siegel, 1997 $304,468 $30,000 $0 $0 0 $0 $0
President and 1996 $173,679 $100,000 $0 $0 100,000 $0 $0
Chief Executive
Officer (1)
Ross E. Bacon, 1997 $125,234 $ 0 $0 $0 0 $0 $0
Executive Vice 1996 $ 64,801 $ 0 $0 $0 50,000 $0 $0
President, Chief
Operating
Officer, Chief
Financial
Officer,
Secretary and
Treasurer (2)
Terry Lalosh, 1997 $138,209 $ 0 $0 $0 0 $0 $1,232
Senior Vice 1996 $127,904 $ 28,420 $0 $0 16,000 $0 $5,012
President and 1995 $ 55,462 $ 32,000 $0 $0 0 $0 $8,858
General
Merchandise
Manager (3)
Mark J. Blankenship, 1997 $108,315 $ 0 $0 $0 0 $0 $0
Senior Vice 1996 $106,705 $ 0 $0 $0 16,000 $0 $0
President of 1995 $ 89,167 $ 10,000 $0 $0 0 $0 $0
Planning and
Allocation (4)
</TABLE>
- --------------
(1) Mr. Siegel became a consultant to the Company on June 26, 1996 pursuant
to the terms of a Consulting Agreement. On August 8, 1996, Mr. Siegel
entered into an employment agreement with the Company and was appointed
President of the Company. In October 1997, the Company entered into a new
five-year employment agreement with Mr. Siegel which amends the terms of
Mr. Siegel's previous employment agreement and provides that Mr. Siegel
will continue to serve as President and Chief Executive Officer of Solo
Serve. See "Agreements Related to Employment." The amount listed as
"salary" for the fiscal year ended February 3, 1996 includes consulting
fees of $42,854. The $100,000 bonus was part of the compensation package
paid upon execution of his employment agreement. At January 31, 1998, Mr.
Siegel held options to purchase 100,000 shares of Common Stock, all of
which were vested and none of which were at an exercise price lower than
the market price of shares of the Common Stock on that date.
(2) Mr. Bacon joined the Company in July 1996. At January 31, 1998, Mr. Bacon
held options to purchase 50,000 shares of Common Stock, all of which were
vested and none of which were at an exercise price lower than the market
price of shares of the Common Stock on that date.
(3) Mr. Lalosh joined the Company in August 1995. Compensation listed in
column (i) reflects relocation expenses reimbursed by the Company to Mr.
Lalosh in the amount of $1,232, $5,012 and $8,858 during the fiscal years
ended January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. At January 31, 1998, Mr. Lalosh held options to purchase
16,000 shares of Common Stock, 12,000 of which were vested and none of
which were at an exercise price lower than the market price of shares of
the Common Stock on that date.
(4) Mr. Blankenship joined the Company in April 1994. At January 31, 1998,
Mr. Blankenship held options to purchase 16,000 shares of Common Stock,
12,000 of which were vested and none of which were at an exercise price
lower than the market price of shares of the Common Stock on that date.
-10-
<PAGE> 15
OPTION GRANTS IN FISCAL YEAR ENDED JANUARY 31, 1998
Pursuant to the Incentive Plan, the Company grants to employees and
officers of the Company (including directors of the Company who are also
employees) incentive stock options and non-qualified stock options. The
Incentive Plan is administered by the Stock Option Committee which, based upon
the recommendation of the Chief Executive Officer, determines the number of
shares subject to each option. The Company made no grants of options pursuant to
the Incentive Plan to any of Messrs. Siegel, Bacon, Lalosh and Blankenship in
the fiscal year ended January 31, 1998.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below reflects exercises of stock options during the fiscal
year ended January 31, 1998 by Messrs. Siegel, Bacon, Lalosh and Blankenship and
the fiscal year end value of unexercised options held by Messrs. Siegel, Bacon,
Lalosh and Blankenship.
<TABLE>
<CAPTION>
Number of Value of unexercised
securities underlying in-the-money
unexercised options options at
at fiscal year-end fiscal year-end
Shares (#) ($)
acquired on Value Exercisable/ Excercisable/
Name exercise (#) Realized ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Charles M. Siegel 0 0 100,00/0 $12,505/0
Ross E. Bacon 0 0 50,000/0 $4,689/0
Terry Lalosh 0 0 12,000/4,000 $1,876/625
Mark J. Blankenship 0 0 12,000/4,000 $1,876/625
</TABLE>
Performance Graph
Set forth below is a performance graph comparing annual cumulative
total stockholder return on the shares of the Common Stock of the Company with
(a) the annual cumulative total stockholder return on stocks included in the
NASDAQ composite index and (b) the annual cumulative total stockholder return on
stocks included in the NASDAQ Retail Stock Index. All of these cumulative total
returns are computed assuming the reinvestment of dividends at the frequency
with which dividends were paid during the applicable period. The periods
compared are the Company's fiscal years from January 1993 to January 1998.
The graph indicates cumulative stockholder return data for both the period
from January 29, 1993 through February 8, 1996, during which time the shares
of the Common Stock of the Company were traded on NASDAQ/NMS, and the period
from February 9, 1996 through January 30, 1998, during which time the shares
of the Common Stock of the
-11-
<PAGE> 16
Company have been traded on the over-the-counter market and quotes for shares of
Common Stock have been carried in the "pink sheets."
[GRAPH]
LEGEND
<TABLE>
<CAPTION>
Symbol Total Returns Index for: 01/29/93 01/28/94 01/27/95 02/02/96 01/31/97 01/30/98
- ------ ------------------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
______ Solo Serve Corporation 100.0 30.0 10.0 2.9 0.5 2.4
........... Nasdaq Stock Market (US Companies) 100.0 114.4 110.3 156.7 203.3 240.3
_ _ _ _ _ _ Nasdaq Retail Trade Stocks 100.0 106.4 95.4 107.1 131.5 153.4
SIC 5200-5599, 5700-5799, 5900-
5999 US & Foreign
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization
on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 01/29/93.
E. No trading activity recorded for Solo Serve on 7/25/95.
-12-
<PAGE> 17
Compensation of Directors
Directors who are not also officers or full-time employees of the
Company were eligible to receive a total retainer fee of $12,500 for the fiscal
year ended January 31, 1998. These directors were also eligible to receive
$1,000 for each duly called meeting of the Board of Directors that such persons
attended (not to exceed $4,000 per year) and $250 for each telephonic meeting of
the Board of Directors in which they participated, and were reimbursed for
reasonable expenses of travel, meals and accommodations in connection with
meetings during the fiscal year ended January 31, 1998.
Each director of the Company, other than Mr. Siegel, has previously
been granted options (the "Initial Director Options") to purchase 20,000 shares
of Common Stock under the Solo Serve Corporation Director Option Plan (the
"Director Plan"), which options become exercisable in five equal installments on
each of the first five anniversaries of the date of grant. There are currently
outstanding options to purchase 80,000 shares of Common Stock under the Director
Plan. On June 17, 1997, the Board of Directors of the Company approved an
amendment to the Director Plan pursuant to which the exercise price of each of
the outstanding Initial Director Options was reduced from $2.125 to $.1875 per
share. On April 14, 1998, the Board of Directors approved an amendment to the
Director Plan which provides that each director who joins the Board for the
first time on or after September 1, 1995 will be granted an option to purchase
15,000 shares of Common Stock on the date such person becomes a director of the
Company. In addition, the Board amended the Director Plan to provide that all
options granted pursuant to the Director Plan after April 14, 1998 will become
exercisable in three equal installments on each of the first three anniversaries
of the date of grant.
In addition to the initial grants of options to new directors, pursuant
to the Director Plan, directors receive annual grants thereafter of 1,000
options, on the first day following the respective Annual Meeting of
Stockholders of the Company after September 1, 1995, provided that the director
remains a member of the Board on such date. The option price per share for each
option is the fair market value (as defined in the Director Plan) of the Common
Stock on the date of grant.
Mr. Grimm and the Company are parties to a consulting agreement (the
"Grimm Consulting Agreement") which provides for a term expiring on July 31,
1998. Pursuant to the terms of the Grimm Consulting Agreement, Mr. Grimm
received a consulting fee of $50,000 as well as life and health insurance
benefits during the fiscal year ended January 31, 1998. The Grimm Consulting
Agreement may be terminated prior to July 31, 1998 upon Mr. Grimm's death or
incapacity, upon the Company's bankruptcy or with cause. Under the terms of the
Grimm Consulting Agreement, Mr. Grimm may not compete with the Company within a
geographical area consisting of Bexar County, Texas and the contiguous counties
of Texas for a period of five years following the termination of the Grimm
Consulting Agreement.
-13-
<PAGE> 18
Agreements Relating to Employment
On August 8, 1996, the Company entered into an employment agreement
(the "1996 Siegel Employment Agreement") with Mr. Siegel. Pursuant to the 1996
Siegel Employment Agreement, Mr. Siegel became President and Chief Executive
Officer of the Company. Mr. Siegel was eligible under the 1996 Siegel Employment
Agreement to receive severance benefits equal to six months' base salary if he
is terminated by the Company without "cause" as that term is defined in the 1996
Siegel Employment Agreement. The 1996 Siegel Employment Agreement terminated a
previous consulting agreement, except for the obligations of confidentiality and
non-competition, which remained in force, and the retention by Mr. Siegel of the
25,000 stock options granted with the consulting agreement. The 1996 Siegel
Employment Agreement also contained independent obligations of confidentiality,
and prohibited Mr. Siegel from investing or becoming employed by or associated
with 50-Off Stores or actively soliciting the employment or hiring of any
Company personnel for a period of twenty-four months following termination of
the Siegel Employment Agreement. The Siegel Employment Agreement provided for a
term ending February 1, 1999, a sign-on bonus of $100,000, an annual base salary
of $300,000, and a grant of options to purchase 75,000 shares of Company common
stock.
In October 1997, the Company entered into a new five-year employment
agreement with Mr. Siegel which amends the terms of the 1996 Siegel Employment
Agreement and provides that Mr. Siegel will continue to serve as President and
Chief Executive Officer of Solo Serve at an initial base salary of $312,000 per
year, subject to a 4% per annum increase each September during the employment
term. The new agreement also provides for a bonus of $30,000 payable in April
1998 and in April 1999 and deferred compensation in an aggregate amount up to
twice Siegel's base salary under the 1996 Siegel Employment Agreement, vesting
15%, 30%, 45%, 60%, and 100%, respectively, over the five-year term of the new
agreement. The new employment agreement also provides for severance pay of up to
two years' base salary as severance if he is terminated by the Company without
Cause, as that term is defined in the new agreement.
On July 8, 1996, the Company entered into a letter agreement with Ross
E. Bacon (the "Bacon Letter Agreement") pursuant to which Mr. Bacon was offered
(and subsequently accepted) employment with the Company. Under the Bacon Letter
Agreement, Mr. Bacon was to receive severance benefits equal to three (3)
month's base salary if he was terminated without "cause" (as defined in the
Bacon Letter Agreement) during the first six (6) months of his employment with
the Company, and six (6) months' base salary if he is terminated without cause
after six months from beginning his employment with the Company.
On March 17, 1998, the Company entered into three-year employment
agreements with each of Messrs. Bacon, Lalosh and Blankenship (the "Management
Employment Agreements"). The Management Employment Agreement for Mr. Bacon
-14-
<PAGE> 19
terminated the Bacon Letter Agreement. Each of the Management Employment
Agreements provides for a term of employment until March 17, 2001, or until
earlier termination as provided therein. Under each of the Management Employment
Agreements, the employee shall receive an annual salary and, if the Company is
profitable, a bonus based upon a formula, which bonus cannot exceed fifteen
percent (15%) of the employee's annual salary. The Company may, but is not
obligated to, pay to the employee a discretionary bonus if the Company does not
make a profit. Each of the Management Employment Agreements provides for the
employee to receive all medical, life insurance and retirement benefits and to
be eligible for vacations, sick leave and other personal time in accordance with
the Company's existing policies for senior executives and/or employees.
The Management Employment Agreements further provide that upon
termination the Company shall pay to each employee his salary through the
termination date. In the case of termination by the Company other than for
cause, each of the Management Employment Agreements provides that the Company
shall also pay to the employee six months' salary and, if notice of termination
was delivered by the employee during the fourth quarter of any fiscal year, a
prorated amount of any bonus the employee would otherwise have been entitled to
receive during such fiscal year. The Management Employment Agreements also
contain confidentiality provisions and a limited noncompetition agreement.
Compensation Committee Interlocks and Insider Participation
Mr. Grimm, who previously served as an officer of the Company and is
currently the Chairman of the Board of the Company, served on the Compensation
Committee of the Board of Directors in the fiscal year ended January 31, 1998.
Mr. Grimm is not standing for re-election as a member of the Board of Directors
at the Annual Meeting.
-15-
<PAGE> 20
CERTAIN TRANSACTIONS
Prior to the Company's initial public offering (the "Initial Public
Offering"), the Company and GAC had been members of an affiliated group (the
"Group") within the meaning of ss.1504(a) of the Internal Revenue Code oF 1986,
as amended (the "Code"), and had been filing consolidated income tax returns.
GAC was the common parent of the Group. GAC and the Company had entered into an
agreement regarding tax allocation providing for the allocation of taxes for the
years that they were members of the Group.
The Company and GAC, on April 17, 1992, entered into an agreement
regarding tax consequences of deconsolidation, the primary purposes of which are
(i) to ensure adequate communication and cooperation between GAC and the Company
after the closing of the Initial Public Offering; (ii) to ensure that the
Company will be entitled to any refund or credit resulting from the carryback of
a net operating loss or credit generated in a taxable year or period beginning
after the closing of the Initial Public Offering; (iii) to provide that both GAC
and the Company will agree to pay to the other party who suffers a tax detriment
as a result of a subsequent Internal Revenue Service audit adjustment any
accompanying tax benefit that such party may receive; (iv) to provide that GAC
will indemnify the Company for any tax liability imposed upon (x) the Group
(other than the Company) for any taxable year or period, and (y) the Company or
for which the Company may be liable for any taxable year or period ending on or
before the closing of the Initial Public Offering; and (v) to provide that the
Company will indemnify GAC for any tax liability of the Company for any taxable
year or period beginning after the closing of the Initial Public Offering.
Pursuant to the terms of the Registration Rights Agreement by and among
the Company, GAC, and Robert J. Grimm dated as of March 6, 1992, the Company has
granted certain registration rights to GAC and Mr. Grimm. Under the terms of the
Registration Rights Agreement, in the event that the Company proposes to
register any of its securities under the Securities Act for its own account,
except in certain circumstances, GAC and Mr. Grimm are entitled to include
shares of Common Stock in such registration ("Piggyback Registration"), subject
to the right of the underwriters of any such offering to limit the number of
shares included in such registration. The Company has agreed to pay all expenses
in connection with a Piggyback Registration. GAC has the additional right to
require ("Demand Registration") the Company to register shares of Common Stock
under the Securities Act at any time after the effective date of the Initial
Public Offering, and the Company is required to effect such registration,
subject to certain conditions and limitations. GAC is required to bear the
expenses of each Demand Registration. GAC has the right to require the Company
to effect three such Demand Registrations; provided, however, that GAC shall not
be entitled to more than one Demand Registration in any period of 180 days. The
Company need not comply with the Demand Registration if the fair market value of
the shares of Common Stock to be registered does not equal or exceed $5,000,000.
To the Company's knowledge, GAC has no current plans to require a Demand
Registration. The Company has agreed to customary indemnities including an
-16-
<PAGE> 21
agreement to indemnify, subject to certain limited exceptions, GAC and Mr. Grimm
in connection with a Demand Registration and a Piggyback Registration.
On October 2, 1997, the Company replaced its existing revolving credit
facility with a $12 million revolving credit facility (the "Credit Facility")
with Sanwa Business Credit Corporation ("Sanwa"). In addition to advances made
to the Company under the Credit Facility based upon the percentage of eligible
inventory, Sanwa made available to the Company an additional $750,000 upon
receipt of a letter of credit in such amount from GAC, one of the Company's
principal stockholders. In consideration for GAC's providing the $750,000
standby letter of credit to Sanwa, the Company granted GAC a second lien
security interest (subordinated to Sanwa) on the assets of the Company pledged
to Sanwa.
On March 17, 1998, the Company amended its Credit Facility to increase
the Company's access to working capital and amend certain covenants.
The Amendment waives compliance with the financial covenants at January
31, 1998, eliminates the Company's minimum net worth covenant entirely, and
revises the interest coverage covenants for 1998. The Amendment also increases
the advance rate on the Company's eligible inventory from 65% to 70% immediately
through December 10, 1998 and provides for an additional $600,000 available to
borrow based upon a new $600,000 letter of credit in favor of Sanwa provided by
GAC. The new $600,000 letter of credit, which is anticipated to terminate thirty
(30) days after consummation of the pending sale of three of the Company's owned
store locations, is in addition to an existing $750,000 letter of credit
previously provided by GAC, which is anticipated to terminate December 31, 1998.
The letters of credit are secured by a second lien on substantially all of the
assets of the Company other than real estate.
On October 2, 1997, Charles M. Siegel, President and Chief Executive
Officer of the Company, and a related family trust loaned the Company an
aggregate amount of $500,000 (the "Siegel Loan"). The Siegel Loan bears interest
at a rate of prime plus 1%, and requires monthly payments of interest only for a
period of five years, at which time the principal becomes due (October 31,
2002). The Siegel Loan is subordinate to the Credit Facility and to repayment by
the Company of any amounts advanced under the letter of credit issued by GAC.
The Company may not repay any principal due under the Siegel Loan without
Sanwa's prior consent and may make interest payments to Mr. Siegel only if there
is no existing default by the Company under the Credit Facility. In addition, on
October 2, 1997, Mr. Siegel purchased from GAC 1,255,000 shares of Common Stock,
representing all of the shares of Common Stock owned by GAC, and his employment
contract with the Company was amended.
On March 17, 1998, each of three members of senior management, Ross E.
Bacon, Executive Vice President, Chief Operating Officer and Chief Financial
Officer, Terry Lalosh, Senior Vice President and General Merchandise Manager,
and Mark Blankenship, Senior Vice President of Planning and Allocation, provided
a $100,000 certificate of deposit for the benefit of GAC to collateralize in
part the $600,000 and $750,000 letters of credit.
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<PAGE> 22
Additionally, on March 17, 1998, each of Messrs. Bacon, Lalosh and
Blankenship acquired 236,562 shares of the Company's Common Stock from GAC,
which shares GAC received upon conversion of an equal number of shares of the
Company's Preferred Stock. GAC continues to own 679,203 shares of the Company's
Preferred Stock, which represents approximately 16% of the aggregate voting
stock of the Company. Also, on March 17, 1998, Charles M. Siegel, Chief
Executive Officer of the Company, transferred to each of Messrs. Bacon, Lalosh
and Blankenship 80,000 shares of Common Stock. Mr. Siegel continues to own
1,015,000 shares of Common Stock. The stock transferred by Mr. Siegel to Messrs.
Bacon, Lalosh and Blankenship was transferred for no stated consideration.
In connection with the acquisition of shares of capital stock of the
Company by Messrs. Bacon, Lalosh and Blankenship, GAC, Siegel, Bacon, Lalosh and
Blankenship entered into the Stockholders Agreement, as described in this Proxy
Statement under the caption "Change of Control." In addition, Solo Serve entered
into three-year employment agreements with each of Messrs. Bacon, Blankenship,
and Lalosh. See "Agreements Related to Employment."
ITEM 2: AMENDMENT OF THE 1995 INCENTIVE STOCK OPTION PLAN
Stockholder approval is being sought to amend the Company's 1995
Incentive Stock Option Plan (the "Incentive Plan") to increase the number of
shares of Common Stock, or Common Stock equivalents, which are available for
grants to the Plan's participants pursuant to the terms of the Incentive Plan.
History and Operation of the Incentive Plan
Under the Incentive Plan, the Stock Option Committee of the Board of
Directors (the "Committee") may make grants of awards to officers, key
employees, consultants and advisors of the Company ("Eligible Persons"). The
Committee may grant stock options ("Options"), stock appreciation rights
("SARs"), shares of restricted stock ("Restricted Stock") and any other form of
compensation that the Committee determines is consistent with the purpose of the
Incentive Plan. During the fiscal year ended January 31, 1998, no Eligible
Persons received grants of awards under the Incentive Plan.
Currently the maximum number of shares of Common Stock or Common Stock
equivalents which may be made subject to grants under the Incentive Plan under
all forms of awards is 500,000.
As of January 31, 1998, 260,000 shares of Common Stock remained subject
to Options and the Company had 240,000 Options available for future grant under
the Incentive Plan. On May 26, the Board of Directors made grants to employees
of Options to purchase an aggregate of 75,000 shares of Common Stock.
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<PAGE> 23
No SARs or shares of Restricted Stock have been granted under the
Incentive Plan.
The Committee may grant Incentive Stock Options ("ISOs"), as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Options not qualifying for treatment as ISOs ("Nonstatutory Stock Options").
Subject to applicable provisions of the Code, the Committee determines the
recipients of Options and the terms of the Options, including the number of
shares for which an Option is granted, the term of the Option and the time(s)
when the Option can be exercised. Restrictions on the exercise of an Option may
at the discretion of the Committee be contained in the agreement with the
participant or in the Committee's procedures. Each ISO must comply with all the
requirements of Section 422 of the Code. The Committee may in its discretion
waive any condition or restriction on the exercise of an Option and may
accelerate the time at which any Option is exercisable.
The price per share of Common Stock subject to an Option (the "Option
Price") is set by the Committee. The Committee also determines the manner in
which the Option Price of an Option may be paid, which may include the tender of
cash or securities or the withholding of Common Stock or cash to be received
through grants or any other arrangement satisfactory to the Committee.
The Board of Directors may at any time amend, suspend, or terminate the
Incentive Plan without stockholder approval or the approval of participants,
except that (i) stockholder approval is required if any action may increase the
total number of shares of Common Stock subject to the Incentive Plan (other than
pursuant to the adjustment provisions of the Incentive Plan) and (ii) the
approval of participants is required if certain modifications are to be made
following an event effectively constituting a Change in Control (as defined in
the Incentive Plan) of the Company.
In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or another corporation by reason of merger, consolidation, other
reorganization, recapitalization, reclassification, combination of shares, stock
split-up, or stock dividend, the Committee shall make such adjustments, if any,
to outstanding grants and the Incentive Plan as it deems appropriate.
Awards under the Incentive Plan may not be granted after January 31,
2005.
Proposed Incentive Plan Amendment
Under the proposed amendment, the number of shares available for awards
under the Incentive Plan will increase by 250,000 shares.
The Board of Directors believes that this amendment is essential to
maintain the Company's balanced and competitive total compensation program.
Without this amendment, the Company will not have sufficient shares of Common
Stock available
-19-
<PAGE> 24
under the Incentive Plan to provide for continued Option grants consistent with
the purpose of the Incentive Plan and the Company's normal compensation
practices. The Company uses the Incentive Plan to relate a portion of the
Company's key employees' total compensation directly to improvement in
stockholder value. The Incentive Plan also supports the Company's ability to
attract and retain highly qualified personnel in key positions. In order to
maintain the continuity and consistency of the program, as well as to minimize
administrative costs and complexity, the Board of Directors recommends amending
the Incentive Plan to authorize additional shares rather than adopting and
implementing an entirely new plan.
The amendment will not be effective unless it is approved by the
Company's stockholders.
Federal Income Tax Consequences
Commencing in taxable years beginning on or after January 1, 1994, a
publicly held corporation may not, subject to limited exceptions, deduct for
federal income tax purposes certain compensation paid to an executive officer
who is the chief executive officer or one of the four other highest paid
executive officers in excess of $1 million in any taxable year (the "$1 Million
Cap"). In general, compensation received on account of the exercise of options
that were granted on or prior to February 17, 1993 will not be subject to the $1
Million Cap. Also, certain other performance-based compensation may not be
subject to the $1 Million Cap. Compensation attributable to the exercise of
options and other awards granted after February 17, 1993, however, may be
counted in determining whether the $1 Million Cap has been exceeded in any
taxable year if such compensation does not qualify as performance-based
compensation. The Company believes that any Options and SARs to be granted under
the Incentive Plan with an exercise price at or above the fair market value of
the Common Stock on the date of grant will qualify as performance-based
compensation and not be subject to the $1 Million Cap. However, whether (i) the
grant of Restricted Stock or any other types of awards under the Incentive Plan
are subject to the $1 Million Cap, (ii) the $1 Million Cap with respect to such
an executive will be exceeded and (iii) the Company's deductions for
compensation paid in excess of the $1 Million Cap will be denied, will depend on
the resolution of various factual and legal issues that cannot be determined at
this time.
Under the Code, a participant receiving a Nonstatutory Stock Option
generally does not realize taxable income upon the grant of the Option. A
participant does, however, realize ordinary income upon the exercise of a
Nonstatutory Stock Option to the extent that the fair market value of the Common
Stock on the date of exercise exceeds the Option Price. The Company may deduct
for federal income tax purposes (subject to the $1 Million Cap, if applicable,
and subject to satisfying the federal income tax withholding requirements) an
amount equal to the ordinary income so realized by the participant. Upon the
subsequent sale of the shares acquired pursuant to a Nonstatutory Stock Option,
any gain or loss will be capital gain or loss, assuming the shares represent a
capital asset in the hands of the participant. There will be no tax
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<PAGE> 25
consequences to the Company upon the subsequent sale of shares acquired pursuant
to a Nonqualified Stock Option.
The grant of an ISO does not result in taxable income to a participant.
The exercise of an ISO also does not result in taxable income, provided that the
employment requirements specified in the Code are satisfied, although such
exercise may give rise to alternative minimum taxable income for the
participant. In addition, if the participant does not dispose of the Common
Stock acquired upon exercise of an ISO during the statutory holding period, then
any gain or loss upon subsequent sale of the Common Stock will be a long-term
capital gain or loss, assuming the shares represent a capital asset in the
participant's hands.
The statutory holding period for the Common Stock acquired pursuant to
the exercise of an ISO is the later of two years from the date the ISO is
granted or one year from the date the Common Stock is transferred to the
participant pursuant to the exercise of the ISO. If the employment and statutory
holding period requirements are satisfied, the Company may not claim any federal
income tax deduction upon either the exercise of the ISO or the subsequent sale
of the Common Stock received upon exercise of the ISO. If these requirements are
not satisfied, the amount of ordinary income taxable to the participant is the
lesser of
(i) the fair market value of the Common Stock on the date of
exercise minus the Option Price, or
(ii) the amount realized on disposition minus the Option Price. The
Company may deduct for federal income tax purposes (subject to the $1 Million
Cap, if applicable) an amount equal to the ordinary income so realized by the
participant.
A recipient does not realize taxable income upon the grant of an SAR
but realizes ordinary income upon its exercise to the extent of the fair market
value of the Common Stock subject to the SAR on the date of the exercise and the
Company may then deduct for federal income tax purposes (subject to the $1
Million Cap, if applicable, and subject to satisfying federal income tax
withholding requirements) an amount equal to the ordinary income realized by the
participant. Upon the subsequent sale of shares acquired pursuant to an SAR, any
gain or loss will be capital gain or loss, assuming the shares represent a
capital asset in the hands of the participant.
In general, a participant receiving Restricted Stock does not realize
taxable income on the grant of Restricted Stock. A participant will, however,
realize ordinary income when the Restricted Stock becomes vested to the extent
that the fair market value of the Common Stock on that date exceeds the price,
if any, paid for the Restricted Stock or, if no price were paid, to the extent
of the fair market value of the Common Stock on that date. However, the
participant may elect (within 30 days after the grant of Restricted Stock) to
realize taxable income on the date of the grant to the extent of the fair market
value of the Restricted Stock (determined without regard to restrictions on
transferability and any substantial risk of forfeiture). If such election is
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<PAGE> 26
made, the participant will not realize taxable income when the Restricted Stock
becomes vested. In addition, if such an election is made and the Restricted
Stock is subsequently forfeited, the participant is not entitled to a deduction
but will be allowed a capital loss, if any, equal to the amount paid for such
shares. Upon a subsequent sale of vested Restricted Stock, any gain or loss will
be capital gain or loss, assuming the shares represent a capital asset in the
hands of the participant. The Company may deduct for federal income tax purposes
(subject to the $1 Million Cap, if applicable, and subject to satisfying federal
income tax withholding requirements) an amount equal to the ordinary income
realized by the recipient of the Restricted Stock. Dividends paid to the
participant on Restricted Stock during the restricted period are ordinary
compensation income to the participant and deductible as such by the Company
(subject to the $1 Million Cap, if applicable).
If the exercisability of an Option or an SAR or the elimination of
restrictions on Restricted Stock is accelerated, or special cash settlement
rights are triggered and exercised, as a result of a Change in Control, all or a
portion of the value of the relevant award at that time may be deemed a
"parachute payment" for purposes of determining whether a 20% excise tax is
payable by the participant as a result of the receipt of an "excess parachute
payment" pursuant to Section 4999 of the Code. The Company will not be entitled
to a deduction for that portion of any parachute payment which is subject to the
excise tax.
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<PAGE> 27
Additional Information
The Board of Directors of the Company approved the following grants by
unanimous written consent on May 26, 1998, in each case subject to the approval
of the stockholders of the Company of the increase in the number of shares
available for grants under the Incentive Plan:
New Plan Benefits
1995 Solo Serve Incentive Stock Option Plan
<TABLE>
<CAPTION>
Name and Position Number of Options*
----------------- ------------------
<S> <C>
Ross E. Bacon, Executive Vice President, Chief 135,000
Operating Officer, Chief Financial Officer,
Secretary and Treasurer
Terry Lalosh, Senior Vice President and General 50,000
Merchandise Manager
Mark J. Blankenship, Senior Vice President of 50,000
Planning and Allocation
Paul Baratz, Vice President - Director of Stores 40,000
Executive Group 235,000
Non-Executive Officer Employee Group 40,000
</TABLE>
* All such options were granted at an exercise price of $0.375 per
share, which was the fair market value of a share of Common Stock determined by
the Board of Directors on the date of grant.
Vote Required
Approval of the Incentive Plan requires the affirmative votes of the
holders of a majority of the outstanding shares present, or represented, and
entitled to vote at the meeting.
The Board of Directors recommend that the stockholders vote "FOR" Item
No. 2 to approve the amendment of the Solo Serve Corporation 1995 Incentive
Stock Option Incentive Plan.
ITEM 3: APPOINTMENT OF AUDITORS
On September 18, 1997, as a result of the closing of its San Antonio
office, the Company dismissed Price Waterhouse LLP ("Price Waterhouse") as its
independent accountants as previously reported in the Company's Current Report
on Form 8-K for that date. The dismissal was approved by the Audit Committee and
the Company's Board of Directors. Price Waterhouse's reports on the financial
statements for the two most recent fiscal years did not contain an adverse
opinion, disclaimer of opinion,
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<PAGE> 28
qualification or modification as to uncertainty, audit scope or accounting
principles, except that such reports included an explanatory paragraph
expressing substantial doubt as to the Company's ability to continue as a going
concern. Furthermore, during the two most recent fiscal years and through
September 18, 1997, there were no disagreements with Price Waterhouse on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Price Waterhouse, would have caused that firm to make reference
to the subject matter of such disagreements in its reports on the financial
statements for such years.
On September 18, 1997, the Company appointed Ernst & Young LLP ("Ernst
& Young") as its independent accountants. During the two most recent fiscal
years and through September 18, 1997, the Company had not consulted with Ernst &
Young regarding the application of accounting principles to a specific
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements.
Representatives of Ernst & Young are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
Approval of the appointment of auditors is not a matter which is
required to be submitted to a vote of stockholders, but the Board of Directors
considers it appropriate for the stockholders to express or withhold their
approval of the appointment. If stockholder approval should be withheld, the
Board of Directors would consider an alternative appointment for the succeeding
fiscal year. The Board of Directors recommends that the stockholders approve the
appointment of Ernst & Young.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders of the Company must be received in writing by the
Company at its principal executive offices not later than February 1, 1999. The
Company's principal executive offices are located at 1610 Cornerway Blvd., San
Antonio, Texas 78219.
PROXY SOLICITATION
The cost of soliciting proxies will be borne by the Company. Proxies
may be solicited through the mail and through telephonic or telegraphic
communications to, or meetings with, stockholders or their representatives by
directors, officers and other employees of the Company who will receive no
additional compensation therefor.
The Company requests persons such as brokers, nominees and fiduciaries
holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their
principals and to request
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<PAGE> 29
authority for the execution of the proxy, and the Company will reimburse such
persons for their reasonable expenses.
OTHER MATTERS
No business other than the matters set forth in this Proxy Statement is
expected to come before the meeting, but should any other matters requiring a
vote of stockholders arise, including a question of adjourning the meeting, the
persons named in the accompanying Proxy will vote thereon according to their
best judgment in the interests of the Company. If any of the nominees for office
of director should withdraw or otherwise become unavailable for reasons not
presently known, the persons named as proxies may vote for another person in his
place in what they consider the best interests of the Company.
UPON THE WRITTEN REQUEST OF ANY PERSON WHOSE PROXY IS SOLICITED
HEREUNDER, THE COMPANY WILL FURNISH WITHOUT CHARGE TO SUCH PERSON A COPY OF ITS
ANNUAL REPORT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K,
INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO, FOR THE FISCAL YEAR ENDED
JANUARY 31, 1998. SUCH WRITTEN REQUEST IS TO BE DIRECTED TO THE ATTENTION OF
ROSS E. BACON, SECRETARY, SOLO SERVE CORPORATION, 1610 CORNERWAY BLVD., SAN
ANTONIO, TEXAS 78219.
By Order of the Board of Directors
Ross E. Bacon
Secretary
Dated: June 1, 1998.
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<PAGE> 30
SOLO SERVE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS: FOR WITHHELD FOR 2. Proposal to Amend the FOR AGAINST ABSTAIN
Stephen P. Reynolds, Charles L. ALL ALL ALL Solo Serve Corporation [ ] [ ] [ ]
Gottsman, John C. Seiler, Ross E. EXCEPT 1995 Stock Incentive Plan.
Bacon, Charles A. Taylor, Charles [ ] [ ] [ ]
M. Siegel, Christine Jo Richardson
3. Approve the appointment FOR AGAINST ABSTAIN
of Ernst & Young LLP as [ ] [ ] [ ]
auditor for fiscal year
ending 1-30-99.
- --------------------------------
Nominee Exception(s)
4. Other matters FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Dated: 1998
--------------------------------------------------
----------------------------------------------------------------
Signature
----------------------------------------------------------------
Signature if held jointly
</TABLE>
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized office. If a
partnership, please sign in partnership name by authorized person.
SOLO SERVE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS - JULY 15, 1998
The undersigned shareholder of Solo Serve Corporation, a Delaware corporation
(the "Company"), hereby appoints Stephen P. Reynolds and John C. Seiler, and
each of them as Proxies, each with the power to appoint his or her substitute,
and hereby authorizes them to represent and to vote, as designated above, all
the shares of common stock of Solo Serve Corporation which the undersigned may
be entitled to vote at the 1998 Annual Meeting of Stockholders to be held on
July 15, 1998 and any adjournment thereof, with all powers which the undersigned
would possess if personally present.
The undersigned acknowledges receipt of the Notices of Annual Meeting of
Stockholders and Proxy Statement of the Company dated June 1, 1998.
Unless otherwise marked, this proxy will be voted FOR the election of the
nominees names, and FOR Proposal Nos. 2, 3 and 4.
