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WTSL > SEC Filings for WTSL > Form 8-K on 21-Mar-2014All Recent SEC Filings

Show all filings for WET SEAL INC

Form 8-K for WET SEAL INC


21-Mar-2014

Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligatio


Item 1.01. Entry Into a Material Definitive Agreement.

On March 20, 2014, The Wet Seal, Inc. (the "Company") entered into a Securities Purchase Agreement (the "Purchase Agreement") with a single institutional investor (the "Investor"), pursuant to which the Company will sell $27 million of convertible senior notes (the "Notes") and warrants (the "Warrants") to purchase up to 8,804,348 of the Company's Class A common stock, par value $0.10 per share (the "Common Stock").

The Purchase Agreement, form of Notes and form of Warrants are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively. The closing of the transactions contemplated by the Purchase Agreement, the Notes and the Warrants (the "Closing") is expected to occur on March 26, 2014 (the "Closing Date"), subject to the satisfaction of certain customary closing conditions.

Description of the Notes

Maturity Date

Unless earlier converted or redeemed, the Notes will mature on the third anniversary of the Closing ("Maturity Date"), subject to the right of the investors to extend the date under certain circumstances.

Interest

The Notes bear interest at a rate of 6% per annum, subject to increase to 18% per annum upon the occurrence and continuance of an event of default (as described below).

Interest on the Notes is payable monthly, in shares of Common Stock, subject to the satisfaction of certain equity conditions, or, at the Company's option, in cash. The number of shares of Common Stock to be paid as interest on the Notes shall be calculated using an interest conversion price equal to the lesser of
(x) the then prevailing conversion price and (y) 90% of the lesser of the average of the volume weighted average price of the Common Stock for (1) the 10 consecutive trading days immediately before the interest payment date and (2) the trading day immediately before the interest payment date.

Conversion

All amounts due under the Notes are convertible at any time, in whole or in part, at the option of the holders into shares of Common Stock at a fixed conversion price, which is subject to adjustment for stock splits, combinations or similar events. The Notes are convertible into shares of Common Stock at the initial price of $1.84 per share.

Mandatory Amortization of Notes

The Company has agreed to make amortization payments with respect to the principal amount of the Notes in shares of Common Stock, subject to the satisfaction of certain equity conditions, using the same conversion price formula described above with respect to payments of interest, or, at the Company's option, in cash, beginning on September 26, 2014 and every calendar month anniversary thereafter through and including the Maturity Date.

On each of the first 6 installment dates (through the one-year anniversary of the Closing Date), the Company's scheduled amortization payment will be an amount equal to $350,000 of Notes. For each of the subsequent 12 installment dates (through the two-year anniversary of the Closing Date), the Company's scheduled amortization payment will be an amount equal to $1,000,000 of Notes. For each of the final 12 installment dates (through the three-year anniversary of the Closing Date), the Company's scheduled amortization payment will be an amount equal to $1,075,000 of Notes.

Any holder of Notes may, at such holder's option, defer all, or any part, of a scheduled amortization to a later amortization date or, subject to certain conditions, at any time from and after the thirteen month anniversary of the Closing Date, solely if the Company is making the scheduled amortization payment for such scheduled amortization date in shares of common stock, accelerate a limited amount of scheduled amortization payments.

Events of Default

The Notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Notes;
(ii) bankruptcy or insolvency of the Company; and (iii) certain failures to comply with the requirements under the Registration Rights Agreement described below.

If there is an event of default, a holder of the Notes may require the Company to redeem all or any portion of the Notes (including all accrued and unpaid interest and all interest that would have accrued through the Maturity Date), in cash, at a price equal to the greater of: (i) 115% of the amount being redeemed, and (ii) the product of (A) 100% of the amount being redeemed, and (B) the quotient determined by dividing (x) the highest closing sale price of the Common Stock on any trading day during the period beginning on the date immediately before the event of default and ending on the date of redemption, by (z) the lowest conversion price in effect during such period.

Change of Control

In the event of transactions involving a change of control, the holder of a Note will have the right to require the Company to redeem all or any portion of the Note it holds (including all accrued and unpaid interest thereon), in cash, at a price equal to 115% of the amount of the Note being redeemed, subject to formula details specified in the Note.

19.99% Cap

The Company is prohibited from issuing shares of Common Stock pursuant to the Notes in excess of 19.99% of the issued and outstanding shares of Common Stock immediately prior to the transaction unless stockholder approval of such issuance of securities is obtained as required by applicable NASDAQ rules. In the event that the Company is prohibited from issuing any shares of Common Stock . . .



Item 2.03. Creation of a Direct Financial Obligation or an Obligation Under
an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 is incorporated herein by reference.



Item 3.02. Unregistered Sales of Equity Securities.

The information contained in Item 1.01 is hereby incorporated by reference. The Notes and the Warrants were offered and sold to an accredited investor pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. In connection with this transactions, the Company will pay a placement agent fee of 5.0% of the gross proceeds.



Item 8.01. Other Events.

The Company issued a press release announcing the transaction set forth in Item 1.01. A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.



Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No. Description

10.1        Securities Purchase Agreement
10.2        Form of Senior Convertible Note
10.3        Form of Warrant
10.4        Form of Registration Rights Agreement
10.5        Form of Guaranty
10.6        Form of Lock-Up Agreement
99.1        Press Release

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