Item 1.01 Entry into a Definitive Material Agreement.
Securities Purchase Agreement
On September 3, 2014, The Wet Seal, Inc., a Delaware corporation (the "Company")
entered into a Securities Purchase Agreement (the "Purchase Agreement") with the
purchasers identified therein, including The Clinton Group, Inc. ("Clinton"),
the Investor (as defined below) and certain other purchasers (each a "Purchaser"
and collectively, the "Purchasers"), relating to a private placement by the
Company of its Class A Common Stock, par value $0.10 per share ("Common Stock"),
having an aggregate value of $18.5 million. The issuance of the Purchaser
Warrants (as defined below), which is to take place within three days of the
signing of the Purchase Agreement, will be completed, and the issuance of the
Common Stock at the closing will be completed, as a private placement
(collectively, the "Private Placement") pursuant to Section 4(a)(2) of the
Securities Act and the requirements to qualify for exemption under Regulation D
promulgated under the Securities Act. The closing of the purchase and sale of
the Common Stock is currently expected to occur in the third or fourth quarter
of the Company's current fiscal year.
Upon execution of the Purchase Agreement, the Purchasers are to receive warrants
(the "Purchaser Warrants") to purchase Common Stock in an amount equal to
150,000 per $1 million in purchase price committed by such Purchaser or, in the
case of two Purchasers, a discount of the lesser of 4% of the Per Share Price
(as defined below) and $0.04 per share of Common Stock purchased by such
Purchaser in lieu of the Warrants. The Company will issue Purchaser Warrants to
purchase up to 2,775,000 underlying shares of Common Stock pursuant to the terms
of the Purchase Agreement.
Under the Purchase Agreement, the Purchasers shall pay a per share purchase
price (the "Per Share Price") equal to the lesser of (i) $1.01, and (ii) 87.5%
of the volume weighted-average price for the Common Stock on the NASDAQ Global
Select Market (the "Nasdaq") over the twenty (20) consecutive trading day period
ending on the trading day immediately preceding the date the subscription price
for the rights offering contemplated by the Company is set by the Company;
provided, however, that if the Company sets the subscription price for such
rights offering at a price per share which is less than the price provided for
in the previous sub-clause (i) or (ii), the per share purchase price shall be
equal to the subscription price per share the Company anticipates offering to
subscribers in a contemplated rights offering. The Company also has a
termination right if the volume weighted average price for the Common Stock
falls below a threshold of $0.80 per share over a 15 trading day period. If the
Company exercises the termination right, then the Company will be required to
(i) pay fees to the placement agent, (ii) make cash payments to the Purchasers
who elected to receive the per share discount in amounts equal to 4% of the
total aggregate amount each such Purchaser committed at execution of the
Purchaser Agreement, and (iii) honor the Purchaser's Warrants for the Purchasers
who elected to receive the Purchaser Warrants.
The Purchase Agreement contains customary representations and warranties,
covenants and indemnification obligations for agreements of this nature. The
closing of the purchase and sale of the Common Stock is subject to closing
conditions, including the Company's obtainment of stockholder approval pursuant
to Nasdaq Listing Rule 5635. The Purchase Agreement contemplates that the
purchase of the Common Stock thereunder will be completed at the same time the
Company completes a rights offering to its stockholders.
The foregoing description of the Purchase Agreement is qualified in its entirety
by reference to the full terms and conditions of the Purchase Agreement, which
is filed as exhibit 10.1 hereto and incorporated herein by reference.
Within three days of the execution of the Purchase Agreement, the Company shall
deliver the Purchaser Warrants to the Purchasers who are to receive the
Purchaser Warrants. The Purchaser Warrants shall have an exercise price of $1.20
per share, subject to adjustments for certain dividends, distributions, stock
splits and certain corporate transactions. The Purchaser Warrants will first
become exercisable on the date that is six months and one day after the date of
issuance and will expire five years after the date of issuance.
The Purchaser Warrants may be exercised for cash, provided that, if there is no
effective registration statement available registering the resale of the shares
underlying the Purchaser Warrants, the Purchaser Warrants may be exercised on a
cashless basis. A Purchaser Warrant may not be exercised by holder if, after
giving effect to the exercise and subsequent issuance of Common Stock
thereunder, the holder together with its affiliates would beneficially own in
excess of 9.99% of the outstanding shares of Common Stock.
The foregoing description of the Purchaser Warrant is qualified in its entirety
by reference to the full terms and conditions of the Purchaser Warrant, which is
filed as exhibit 10.2 hereto and incorporated herein by reference.
Registration Rights Agreement
On September 3, 2014, the Company entered into a Registration Rights Agreement
(the "Registration Rights Agreement") with the Purchasers, which sets forth the
rights of the Purchasers to have the shares of Common Stock they purchase in the
Private Placement and the shares of Common Stock issuable upon exercise of the
Purchaser Warrants registered with the Securities and Exchange Commission (the
"SEC") for public resale under the Securities Act.
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The disclosures regarding the Exchange Note set forth in Item 1.01 are
incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities.
As described in Item 1.01 of this Report, which is incorporated herein by
reference, pursuant to the Purchase Agreement on September 3, 2014, the Company
issued Warrants to purchase up to 2,775,000 shares of Common Stock at an
exercise price of $1.20 per share. The warrants will be exercisable beginning
six months and one day after issuance, and will be exercisable for five years
following the initial exercisability date. In addition, the Company agreed to
sell shares of Common Stock in the future for aggregate gross proceeds of $18.5
million. Assuming a per share purchase price of between $1.01 (the ceiling
price) and $0.70, (which is 87.5% of $0.80, which is the price where the Company
has a termination right), the Company estimates that it will issue between
18,316,831 and 26,428,572 shares of Common Stock pursuant to the Purchase
Agreement. The Company relied on the exemption from registration under
Section 4(2) of the Securities Act for purposes of the Private Placement.
As described in Item 1.01 of this Report, which is incorporated herein by
reference, on September 3, 2014, the Company exchanged $27 million aggregate
principal amount of Initial Notes for $27 million aggregate principal amount of
Exchange Notes. The Exchange Notes are convertible into shares of Common Stock
at an initial conversion rate of $1.84 per share or a total of 14,673,913 shares
of Common Stock, and are entitled to earn interest which may be paid in cash or
in shares of Common Stock. In addition, on September 3, 2014, the Company
exchanged the Initial Warrants for the Exchange Warrants. The Exchange Warrants
are exercisable into a total of 8,804,348 shares of Common Stock at an initial
exercise price of $1.76 per share.
The exchange of the Initial Notes for the Exchange Notes and of the Initial
Warrants for the Exchange Warrants was made in reliance on the exemption from
registration contained in Section 3(a)(9) of the Securities Act of 1933, as
amended. The shares of Common stock issuable upon conversion of the Exchange
Notes or upon exercise of the Exchange Warrants will be issued pursuant to
Section 4(2) of the Securities Act.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On September 2, 2014, Ms. Lynda J. Davey informed the Company that she will be
resigning as a member of the Board effective on October 1, 2014. Additionally,
Ms. Davey resigned from her positions as Chairperson of the Board and as a
member of the Compensation Committee of the Board, which such resignations will
become effective on October 1, 2014. Ms. Davey's resignation was not the result
of any disagreement with the Company on any matter relating to the Company's
operations, policies or practices. In connection with her resignation, the Board
approved the accelerated vesting of 48,673 unvested restricted units.
On September 2, 2014, the Board appointed Mr. Adam Rothstein to the position of
Chairperson of the Board, effective immediately upon Ms. Davey's resignation
from such position.
On September 2, 2014, the Company entered into a letter agreement (the "Letter
Agreement") with Clinton. Clinton is a Purchaser under the Purchase Agreement,
and Clinton including its affiliates are stockholders of the Company. The Letter
Agreement provides that the Board of Directors of the Company (the "Board") will
appoint Greg Taxin to the Board, subject to a determination by the Board that
Mr. Taxin meets applicable legal requirements for service as a director and
applicable independence requirements for compensation committee members of
Nasdaq listed companies and satisfactory completion of the Company's standard
director questionnaire and standard background check. The Board will also
consider such designee for membership on one or more of the Board's committees,
which committee assignments are to be mutually agreeable to Mr. Taxin and the
Board. Such committee appointments have not been determined as of the date of
this filing. Pursuant to the terms of the Letter Agreement, Mr. Taxin's
appointment is to take place at the first meeting of the Board which takes place
after October 1, 2014.
The foregoing description of the Letter Agreement is qualified in its entirety
by reference to the full terms and conditions of the Letter Agreement, which is
filed as Exhibit 10.7 hereto and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
10.1 Securities Purchase Agreement, dated September 3, 2014, among the
Company and the Purchasers party thereto
10.2 Form of Common Stock Purchase Warrant (the "Purchaser Warrant")
10.3 Registration Rights Agreement, dated September 3, 2014, among the
Company and the Holders party thereto
10.4 Amendment, Consent and Exchange Agreement, dated September 3, 2014,
between the Company and the Holder party thereto
10.5 Form of Senior Convertible Note
10.6 Form of Warrant to Purchase Common Stock (the "Exchange Warrant")
10.7 Letter Agreement regarding director designee, dated September 3,
2014, between the Company and The Clinton Group, Inc.