EXHIBIT 10.27

THE WET SEAL, INC.

2005 STOCK INCENTIVE PLAN

STOCK OPTION AGREEMENT

This Stock Option Agreement (the “Agreement”) is made and entered into as of the
date of grant set forth below (the “Date of Grant”) by and between The Wet Seal,
Inc., Delaware corporation (the “Company”), and participant named below
(“Participant”). Capitalized terms not defined herein will have the meaning
ascribed to them in the Company’s 2005 Stock Incentive Plan (the “Plan”).

 

Participant:   

 

   Total Option Shares:   

 

   Exercise Price Per Share:   

 

   Date of Grant:   

 

   Type of Stock Option       (Check One):    ¨  Incentive Stock Option, to the
maximum extent permissible    x  Nonqualified Stock Option

1. Grant of Option. The Company hereby grants to Participant an option (this
“Option”) to purchase the total number of shares of Common Stock of the Company
set forth above as Total Option Shares (the “Shares”) at the Exercise Price Per
Share set forth above (the “Exercise Price”), subject to all of the terms and
conditions of this Agreement and the Plan. If designated as an Incentive Stock
Option above, the Option is intended to qualify as an “incentive stock option”
(the “ISO”) within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”), although the Company makes no representation or
guarantee that such Option will qualify as an ISO. The Option will be an ISO to
the maximum extent permitted under the Code and any portion which cannot qualify
will be a Nonqualified Stock Option

2. Exercise Period.

2.1 Provided Participant continues to provide Continuous Service to the Company
or any Subsidiary, the Option will become vested and exercisable with respect to
33 1/3% of the Shares subject thereto on each of the next three
(3) anniversaries of the Date of Grant until the Option is 100% vested. Except
as provided in this Agreement, unvested Options will not be exercisable on or
after Participant’s termination of Continuous Service (“Termination Date”) and
will immediately terminate on such Termination Date.

 

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2.2 The Option will expire on the date five (5) years from the Date of Grant, or
earlier as provided in this Agreement or the Plan.

3. Termination of Continuous Service.

3.1 If Participant’s Continuous Service is terminated, Options will remain
exercisable as follows:

(a) If Participant’s termination of Continuous Service is due to death, all
unvested Options will terminate and all vested Options will be exercisable by
Participant’s designated beneficiary, or if none, the person(s) to whom such
Participant’s rights under the Option are transferred by will or the laws of
descendent and distribution for one (1) year following the Termination Date (but
in no event beyond the term of the Option).

(b) If Participant’s termination of Continuous Service is due to disability, all
unvested Options will terminate and all vested Options will be exercisable by
Participant for one (1) year following the Termination Date (but in no event
beyond the term of the Option).

(c) If Participant’s termination of Continuous Service is due to termination for
Cause, the Option will terminate on the Termination Date, regardless of whether
the Option was then exercisable.

(d) If Participant’s termination of Continuous Service is due to any other
reason, all unvested Options will terminate on the Termination Date and all
Options (to the extent exercisable as of the Termination Date) will be
exercisable for a period of three (3) months following such Termination Date
(but in no event beyond the term of the Option) and will thereafter terminate.
The Participant’s status as an employee will not be considered terminated in the
case of leave of absence agreed to in writing by the Company (including but not
limited to military and sick leave); provided, that, such leave is for a period
of not more than three (3) months or reemployment upon expiration of such leave
is guaranteed by contract or statute.

3.2 Nothing in the Plan or this Agreement will confer on Participant any right
to the continuation of service with the Company, or any of its Subsidiaries, or
interfere in any way with the right of the Company or its Subsidiaries to
terminate his or her Continuous Service at any time.

4. Manner of Exercise.

4.1 A Participant (or in the case of exercise after Participant’s death or
incapacity, Participant’s executor, administrator, heir or legatee, as the case
may be) may exercise his or her Option by giving written notice of exercise to
the Company in a form approved by the Company specifying the number shares of
Common Stock to be purchased. Such notice must be accompanied by the payment in
full of the Option exercise price. The exercise price of the Option may be paid
by in the following manner: (i) cash or certified or bank check, (ii) surrender
of Common Stock held by the Participant for at least 6 months prior to exercise
(or such longer or shorter period as may be required to avoid a charge to
earnings for

 

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financial accounting purposes) or the attestation of ownership of such shares,
in either case, if so permitted by the Company, (iii) if established by the
Company, through a “same day sale” commitment from the Participant and a
broker-dealer selected by the Company that is a member of the National
Association of Securities Dealers (an “NASD Dealer”) whereby the Participant
irrevocably elects to exercise the Option and to sell a portion of the shares so
purchased sufficient to pay for the total exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such shares to forward the total
exercise price directly to the Company, or (iv) by any combination of the
foregoing, and, in all instances, to the extent permitted by applicable law. A
Participant’s subsequent transfer or disposition of any Common Stock acquired
upon exercise of an Option will be subject to any Federal and state laws then
applicable, specifically securities law, and the terms and conditions of the
Plan.

4.2 Upon (a) disposition of shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option granted pursuant to the Plan within two
years of the grant of the Incentive Stock Option or within one year after
exercise of the Incentive Stock Option, or (b) exercise of a Nonqualified Stock
Option (or an Incentive Stock Option treated as a Nonqualified Stock Option), or
(c) under any other circumstances determined by the Committee in its sole
discretion, the Company will have the right to require any Participant, and such
Participant by accepting the Awards granted under the Plan agrees, to pay to the
Company the amount of any Federal, state, local income taxes or other taxes
incurred by reason of the exercise of Options granted hereunder that the Company
may be required to withhold with respect thereto. In the event of clauses (a),
(b) or (c), Participant will pay to the Company such amount as the Company deems
necessary to satisfy its minimum tax withholding obligation and such payment
will be made: (i) in cash, (ii) to the extent authorized by the Committee,
having the Company retain shares which would otherwise be delivered upon
exercise of an Option, (iii) to the extent authorized by the Committee,
delivering or attesting to ownership of Shares owned by the holder of the Option
for at least 6 months prior to the exercise of such Option (or such longer or
shorter period as may be required to avoid a change to earnings for financial
accounting purposes), or (iv) any combination of any such methods. For purposes
hereof, Shares will be valued at Fair Market Value.

5. Issuance of Shares. Except as otherwise provided in the Plan or this
Agreement, as promptly as practicable after receipt of such written notification
of exercise and full payment of the Exercise Price and any required income tax
withholding, the Company will issue or transfer to Participant the number of
Shares with respect to which Options have been so exercised (less shares
withheld in satisfaction of tax withholding obligations, if any), and will
deliver to Participant a certificate or certificates therefor, registered in
Participant’s name.

6. Company; Participant.

6.1 The term “Company” as used in this Agreement with reference to Continuous
Service will include the Company and its Subsidiary, if any, as appropriate.

6.2 Whenever the word “Participant” is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to the beneficiaries, the executors, the administrators, or the person or
persons to whom the Options may be transferred by will or by the laws of descent
and distribution, the word “Participant” will be deemed to include such person
or persons.

 

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7. Non-Transferability. The Options are not transferable by Participant
otherwise than to a designated beneficiary upon death or by will or the laws of
descent and distribution, and are exercisable during Participant’s lifetime only
by him or her. No assignment or transfer of the Options, or of the rights
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise (except to a designated beneficiary, upon death, by will or the laws
of descent and distribution), will vest in the assignee or transferee any
interest or right herein whatsoever, but immediately upon such assignment or
transfer the Options will terminate and become of no further effect.

8. Rights as Shareholder. Participant or a transferee of the Options will have
no rights as shareholder with respect to any Shares until he or she will have
become the holder of record of such share, and no adjustment will be made for
dividends or distributions or other rights in respect of such Shares for which
the record date is prior to the date upon which he or she will become the holder
of record thereof.

9. Adjustments. Options may be adjusted or terminated in any manner as
contemplated by the Plan.

10. Change of Control. Upon the occurrence of a Change of Control, all Options
will become 100% vested and exercisable; provided, that, Participant is then in
Continuous Service.

11. Compliance with Law. Notwithstanding any of the provisions hereof,
Participant hereby agrees that he or she will not exercise the Options, and that
the Company will not be obligated to issue or transfer any shares to Participant
hereunder, if the exercise hereof or the issuance or transfer of such shares
will constitute a violation by Participant or the Company of any provisions of
any law or regulation of any governmental authority. Any determination in this
connection by the Committee will be final, binding and conclusive. The Company
will in no event be obliged to register any securities pursuant to the
Securities Act (as now in effect or as hereafter amended) or to take any other
affirmative action in order to cause the exercise of the Options or the issuance
or transfer of shares pursuant thereto to comply with any law or regulation of
any governmental authority.

12. Notice. Every notice or other communication relating to this Agreement will
be in writing, and will be mailed to or delivered to the party for whom it is
intended at such address as may from time to time be designated by it in a
notice mailed or delivered to the other party as herein provided; provided,
that, unless and until some other address be so designated, all notices or
communications by Participant to the Company will be mailed or delivered to the
Company at its principal executive office, and all notices or communications by
the Company to Participant may be given to Participant personally or may be
mailed to him or her at his or her address as recorded in the records of the
Company.

13. Binding Effect. Subject to Section 7 hereof, this Agreement will be binding
upon the heirs, executors, administrators and successors of the parties hereto.

 

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14. Governing Law. This Agreement will be construed and interpreted in
accordance with the laws of the State of California without regard to its
conflict of law principles.

15. Plan. The terms and provisions of the Plan are incorporated herein by
reference, and Participant hereby acknowledges receiving a copy of the Plan. In
the event of a conflict or inconsistency between the discretionary terms and
provisions of the Plan and the provisions of this Agreement, this Agreement will
govern and control.

16. Notice of Disqualifying Disposition of ISO Shares. If the Option is an ISO,
and if Participant sells or otherwise disposes of any of the Shares acquired
pursuant to the ISO on or before the later of (i) the date 2 years after the
Date of Grant, and (ii) the date 1 year after transfer of such Shares to
Participant upon exercise of the Option, Participant will immediately notify the
Company in writing of such disposition. Participant agrees that Participant may
be subject to income tax withholding by the Company on the compensation income
recognized by Participant from the early disposition by payment in cash or out
of the current wages or other compensation payable to Participant.

17. Tax Consequences. Set forth below is a brief summary as of the Effective
Date of the Plan of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. PARTICIPANT SHOULD
CONSULT A TAX ADVISOR BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

17.1 If the Option qualifies as an ISO, there will be no regular federal income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as a tax preference item for federal alternative minimum
tax purposes and may subject Participant to the alternative minimum tax in the
year of exercise.

17.2 If the Option does not qualify as an ISO, there may be a regular federal
income tax liability upon the exercise of the Option. Participant will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Shares on
the date of exercise over the Exercise Price. If Participant is a current or
former employee of the Company, the Company may be required to withhold from
Participant’s compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.

17.3 The following tax consequences may apply upon disposition of the Shares.

(a) If the Shares are held for more than 12 months after the date of the
transfer of the Shares pursuant to the exercise of an ISO and are disposed of
more than 2 years after the Date of Grant, any gain realized on disposition of
the Share will be treated as long term capital gain for federal income tax
purposes. If Shares purchased under an ISO are disposed of within the applicable
1 year or 2 year period, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to extent of the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price.

 

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(b) If the Shares are held for more than 12 months after the date of the
transfer of the Shares pursuant to the exercise of an Nonqualified Stock
Options, any gain realized on disposition of the Share will be treated as long
term capital gain.

(c) The Company may be required to withhold from Participant’s compensation or
collect from Participant and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income.

18. Successors and Assigns. The Company may assign any of its rights under this
Agreement. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer
set forth herein, this Agreement will be binding upon Participant and
Participant’s heirs, executors, administrators, legal representatives.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in
triplicate by its duly authorized representative and Participant has executed
this Agreement in triplicate, effective as of the Date of Grant.

 

“COMPANY”  

The Wet Seal, Inc.,

a Delaware corporation

By

 

 

  John Luttrell   EVP, Chief Financial Officer “OPTIONEE”

 

 

 

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