SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material under Rule 14a-12
HOT TOPIC, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
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|X| No fee required.
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2. Aggregate number of securities to which transaction applies:
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computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
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|_| Fee paid previously with preliminary materials.
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HOT TOPIC, INC.
18305 E. San Jose Avenue
City of Industry, California 91748
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 13, 2002
TO THE SHAREHOLDERS OF HOT TOPIC, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of HOT
TOPIC, INC., a California corporation (the "Company"), will be held on Thursday,
June 13, 2002 at 10:00 a.m. local time at the Company's headquarters at 18305 E.
San Jose Avenue, City of Industry, California for the following purposes:
1. To elect seven (7) directors to serve for the ensuing year and until
their successors are elected.
2. To approve the amendment to the Company's Amended and Restated Articles
of Incorporation to increase the number of shares of authorized Common
Stock from 50,000,000 shares to 150,000,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending February 1, 2003.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 19,
2002, as the record date for the determination of shareholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof. If you plan on attending the Annual Meeting, please call
Jay A. Johnson at the Company at 626-839-4681.
By Order of the Board of Directors
/s/ Jay A. Johnson
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JAY A. JOHNSON
Assistant Secretary
City of Industry, California
May 10, 2002
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ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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1.
HOT TOPIC, INC.
18305 E. San Jose Avenue
City of Industry, California 91748
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
June 13, 2002
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Hot Topic, Inc., a California corporation ("Hot Topic" or the "Company"), for
use at the Annual Meeting of Shareholders to be held on June 13, 2002, at 10:00
a.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the Company's headquarters at
18305 E. San Jose Avenue, City of Industry, California. The Company intends to
mail this proxy statement and accompanying proxy card on or about May 10, 2002,
to all shareholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy card and any additional information furnished to shareholders. Copies
of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of common stock of the
Company (the "Common Stock") beneficially owned by others to forward to such
beneficial owners. The Company may reimburse persons representing beneficial
owners of Common Stock for their costs of forwarding solicitation materials to
such beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of the Company. No additional compensation
will be paid to directors, officers or other regular employees for such
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
April 19, 2002 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on April 19, 2002 the Company had outstanding and
entitled to vote 31,569,255 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
towards a quorum but are not counted for any purpose in determining whether a
matter is approved; provided, however, for the purpose of approving Proposal 2,
abstentions and broker non-votes will have the same effect as negative votes
because the affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock is required to approve the amendment to the Company's
Amended and Restated Articles of Incorporation.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary or Assistant Secretary of the Company at the Company's principal
executive office, 18305 E. San Jose Avenue, City of Industry, California 91748,
a written notice of revocation or a duly executed proxy bearing a later date, or
it may be revoked by attending the meeting and voting in person. Attendance at
the meeting will not, by itself, revoke a proxy.
2.
SHAREHOLDER PROPOSALS
The deadline for submitting a shareholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2003 Annual
Meeting of Shareholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is January 10, 2003. Shareholders wishing to submit proposals or
director nominations that are not to be included in such proxy statement and
proxy must do so by written notice delivered to or mailed and received at the
principal executive offices of the Company no later than February 14, 2003.
Shareholders are also advised to review the Company's Amended and Restated
Bylaws, which contain additional requirements with respect to advance notice of
shareholder proposals and director nominations.
3.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the Board of Directors. Each director to
be elected will hold office until the next annual meeting of shareholders and
until his or her successor is elected and has qualified, or until such
director's earlier death, resignation or removal. Each nominee listed below is
currently a director of the Company and was nominated by the Company's
Nominating Committee. In addition, the Board of Directors approved each
nomination. Five of such nominees were elected by the shareholders at last
year's annual meeting of shareholders; and Ms. Cohen and Mr. Hedrick were
subsequently appointed to the Board of Directors by the vote of the members of
the Board of Directors. Currently, there are eight members of the Board of
Directors and eight Board of Directors positions authorized; provided, however,
pursuant to resolutions of the Board of Directors adopted in accordance with the
Company's Amended and Restated Bylaws, the number of authorized directors will
be set at seven as of this year's annual meeting of shareholders.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the seven nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
The seven candidates receiving the highest number of affirmative votes
of the shares entitled to be voted will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set
forth below:
NAME AGE POSITION CURRENTLY HELD WITH THE COMPANY
- ------------------------------- --- ----------------------------------------
Edgar F. Berner ............... 70 Director
Cynthia Cohen.................. 49 Director
Corrado Federico .............. 61 Director
W. Scott Hedrick............... 56 Director
Elizabeth M. McLaughlin........ 41 Chief Executive Officer, President and
Director
Bruce A. Quinnell.............. 53 Director
Andrew Schuon ................. 37 Director
EDGAR F. BERNER has been a director of the Company since 1990. Mr.
Berner is a private investor and consultant to emerging growth companies. Since
March 1999, Mr. Berner has been Vice President and on the Board of Directors of
Real Age, Inc. Mr. Berner currently serves as a director of Garden Fresh, Inc.,
a publicly traded restaurant chain, and Barbeques Galore Ltd., a publicly traded
chain of barbeque stores. From 1991 to February 1999, Mr. Berner served as
Chairman of the Board of Directors of Sweet Factory, Inc., a retail candy store
chain, and he also served as Chief Executive Officer of that company from 1991
to January 1996.
CYNTHIA COHEN has been a director of the Company since September 2001.
Ms. Cohen is the President of Strategic Mindshare, a marketing and strategy
consulting firm, that she founded in 1990. Prior to founding Strategic
Mindshare, Ms. Cohen was a Partner with Deloitte Consulting. Ms. Cohen is a
director of Office Depot, Inc. and The Sports Authority, Inc., both
publicly-traded, consumer products companies, and a director of several
privately held companies.
4.
CORRADO FEDERICO has been a director of the Company since December
1997. Mr. Federico is also a director of bebe stores, inc., a contemporary
women's fashion chain with approximately 160 stores throughout the United States
and abroad, and the President of Corado, Inc., a land development company
specializing in affordable housing. Since May 1999, he has also served as
President of Solaris Properties, Inc., a real estate company. From 1986 to 1991,
Mr. Federico served as President and CEO of ESPRIT's United States apparel,
retail and mail order operations.
W. SCOTT HEDRICK has served as a director of the Company since January
2002. Mr. Hedrick was a founder and has been a General Partner of InterWest
Partners, a venture capital fund, since 1979. Since April 1991, Mr. Hedrick has
been a director of Office Depot, Inc. and from November 1986 until April 1991,
he served as a director of The Office Club, Inc., which was acquired by Office
Depot, Inc. in April 1991. Mr. Hedrick also serves as a director of Vintners,
Inc., a publicly-traded, consumer products company, and several privately held
companies.
ELIZABETH M. MCLAUGHLIN has served as Chief Executive Officer of the
Company since August 2000 and President since February 2000, and has served on
the Board of Directors since May 2000. From June 1996 through February 2000, Ms.
McLaughlin served as Senior Vice President and General Merchandise Manager of
the Company. From May 1993 through May 1996, Ms. McLaughlin was the Company's
Vice President, Operations. Prior to joining the Company, Ms. McLaughlin held
various positions with Millers Outpost, a privately-held teen retailer, where
she served as Divisional Merchandise Manager, Director of Store Operations, and
Director of Financial Planning and Budgeting. Prior to joining Millers Outpost,
Ms. McLaughlin held various financial analyst and store positions with The
Broadway.
BRUCE A. QUINNELL has been a director of the Company since September
1998. From April 1999 to February 2002, Mr. Quinnell was Vice Chairman of
Borders Group, Inc. From January 1997 to April 1999, Mr. Quinnell was the
President and Chief Operating Officer of Borders Group, Inc. From 1994 to
January 1997, Mr. Quinnell was the President and Chief Operating Officer of
Waldenbooks.
ANDREW SCHUON has been a director of the Company since January 1998.
Since April 2001, Mr. Schuon has been President and Chief Executive Officer of
Pressplay, a joint venture created by Sony Music Entertainment and Universal
Music Group. From December 1999 to April 2001, Mr. Schuon has been President and
Chief Operating Officer of the Universal Music Group's music business,
Farmclub.com, Inc. Prior to that, from February 1998 to November 1999, Mr.
Schuon was Executive Vice President/General Manager of Warner Bros. Records Inc.
From 1992 to December 1997, Mr. Schuon served as Executive Vice President of MTV
where he was responsible for programming, music, production and talent for their
MTV and VH1 cable channels.
DIRECTOR NOT CONTINUING AFTER THE ANNUAL MEETING
ROBERT M. JAFFE has been Chairman of the Board of Directors of the
Company since September 1992. Mr. Jaffe has served as President and Chief
Executive Officer of Sorrento Associates, Inc. (the general partner of the
Sorrento Venture funds, several of which are shareholders of the Company) since
1985. Mr. Jaffe previously was an investment banker with Merrill Lynch Capital
Markets, Salomon Brothers and Goldman, Sachs & Company. Mr. Jaffe has decided
not to stand for re-election at the Annual Meeting.
BOARD OF DIRECTORS COMMITTEES AND MEETINGS
During the fiscal year ended February 2, 2002, the Board of Directors
held four regular meetings. The Board of Directors has established committees of
the Board of Directors, including an Audit Committee, a Compensation Committee
and a Nominating Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board of Directors the independent
auditors to be retained; and receives and considers the independent auditors'
comments as to controls, adequacy of staff and management performance and
procedures in connection with audit and financial controls. During fiscal 2001
(the year ended February 2, 2002), the Audit Committee was composed of three
non-employee directors: Messrs. Berner, Quinnell and Jaffe. In March 2002, the
Board of Directors appointed Ms. Cohen, a non-employee director, to the Audit
5.
Committee effective upon Mr. Jaffe's resignation from the Board of Directors in
June 2002. The Audit Committee met five times during the fiscal year. All
members of the Company's Audit Committee are independent (as independence is
defined in Rule 4200(a)(14) of the NASD listing standards). The Audit Committee
has adopted a written Audit Committee Charter.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board of
Directors may delegate. During fiscal 2001, the Compensation Committee was
composed of three non-employee directors: Messrs. Jaffe, Schuon and Quinnell. In
March 2002, the Board of Directors appointed Mr. Hedrick, a non-employee
director, to the Compensation Committee effective upon Mr. Jaffe's resignation
from the Board of Directors in June 2002. The Compensation Committee met once
during the fiscal year.
The Nominating Committee interviews, evaluates, nominates and
recommends individuals for membership on the Company's Board of Directors and
committees thereof and nominates specific individuals to be elected as officers
of the Company by the Board of Directors. No procedure has been established for
the consideration of nominees recommended by shareholders. During fiscal 2001,
the Nominating Committee was composed of three non-employee directors: Messrs.
Quinnell, Jaffe and Federico. It met four times during the fiscal year.
During the fiscal year ended February 2, 2002, each Board of Directors
member attended 75% or more of the aggregate meetings of the Board of Directors
and of the committees on which each Board of Directors member served, held
during the period for which the Board of Directors member was a director or
committee member, respectively.
6.
PROPOSAL 2
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Company's Amended and Restated Articles of Incorporation to
increase the Company's authorized number of shares of Common Stock from
50,000,000 shares to 150,000,000 shares.
The additional Common Stock to be authorized by adoption of the
amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding Common
Stock of the Company, except for effects incidental to increasing the number of
shares of the Company's Common Stock outstanding, such as dilution of the
earnings per share and voting rights of current holders of Common Stock. If the
amendment is adopted, it will become effective upon filing of a Certificate of
Amendment of the Company's Amended and Restated Articles of Incorporation with
the Secretary of State of the State of California.
In addition to the 31,569,255 shares of Common Stock outstanding at
April 19, 2002, the Board of Directors has reserved (i) 10,350,000 shares for
issuance upon exercise of options and rights granted under the Company's 1996
Equity Incentive Plan, as amended (the "1996 Plan") of which 5,296,632 shares
have been issued by the Company pursuant to the exercise of options granted
under the 1996 Plan (and are, therefore, included in the 31,569,255 shares
outstanding) (ii) 480,000 shares for issuance upon exercise of options granted
under the Company's 1996 Non-employee Directors' Stock Option Plan, as amended
(the "Directors' Plan") of which 175,407 shares have been issued by the Company
pursuant to the exercise of options granted under the Director's Plan (and are,
therefore, included in the 31,569,255 shares outstanding), and (iii) 900,000
shares for issuance pursuant to rights granted under the Company's Employee
Stock Purchase Plan, as amended (the "ESPP") of which 98,217 shares have been
purchased under the ESPP (and are, therefore, included in the 31,569,255 shares
outstanding).
Although at present the Board of Directors has no other plans to issue
the additional shares of Common Stock, it desires to have such shares available
to provide additional flexibility to use its capital stock for business and
financial purposes in the future, including to effectuate future potential stock
splits by way of a stock dividend (the Company previously declared and effected
three stock splits by way of stock dividends: two for one stock splits in
December 1999 and December 2000 and a three for two stock split in February
2002). In addition, the additional shares may be used, without further
shareholder approval, for various purposes including raising capital, providing
equity incentives to employees, officers or directors (subject to applicable
restrictions on the Company's ability to grant options and other stock awards to
its officers or directors), establishing strategic relationships with other
companies and expanding the Company's business or product lines through the
acquisition of other businesses or products.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. Although this proposal to increase the authorized
Common Stock has been prompted by business and financial considerations and not
by the threat of any hostile takeover attempt (nor is the Board of Directors
currently aware of any such attempts directed at the Company), nevertheless,
shareholders should be aware that approval of proposal could facilitate future
efforts by the Company to deter or prevent changes in control of the Company,
including transactions in which the shareholders might otherwise receive a
premium for their shares over then current market prices.
The affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock, will be required to approve this amendment to the
Company's Amended and Restated Articles of Incorporation. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
7.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending February 1, 2003 and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. Ernst & Young LLP has
audited the Company's financial statements since its inception in 1988.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Shareholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board of Directors is submitting the selection of Ernst
& Young LLP to the shareholders for ratification as a matter of good corporate
practice. If the shareholders fail to ratify the selection, the Audit Committee
and the Board of Directors will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board of
Directors in their discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such a
change would be in the best interests of the Company and its shareholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and voting at the Annual Meeting (which shares
voting affirmatively also constitute at least a majority of the required quorum)
will be required to ratify the selection of Ernst & Young LLP. For purposes of
this vote abstentions and broker non-votes will not be counted for any purpose
in determining whether this matter has been approved.
AUDIT FEES. During the fiscal year ended February 2, 2002, the
aggregate fees billed by Ernst & Young LLP for the audit of the Company's
financial statements for such fiscal year and for the review of the Company's
interim financial statements were $143,826.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. During
the fiscal year ended February 2, 2002, there were no fees billed by Ernst &
Young LLP for information technology consulting services.
ALL OTHER FEES. During the fiscal year ended February 2, 2002, the
aggregate fees billed by Ernst & Young LLP for professional services other than
audit and information technology consulting fees were $147,392, substantially
all of which were related to tax services provided by Ernst & Young LLP and tax
filings prepared by Ernest & Young LLP.
The Audit Committee has determined the rendering of non-audit services
by Ernst & Young LLP is compatible with maintaining the auditor's independence.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
8.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 25, 2002 by: (i) each
director; (ii) each of the executive officers named in the Summary Compensation
Table; and (iii) all executive officers and directors of the Company as a group.
All share information gives effect to the 2 for 1 stock splits effected by the
Company in December 1999 and December 2000 and the 3 for 2 stock split effected
by the Company in February 2002. As of March 25, 2002, the Company was unaware
of any stockholder that beneficially owned 5% or more of the outstanding Common
Stock.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NUMBER OF PERCENT OF
DIRECTORS, OFFICERS AND 5% SHAREHOLDERS SHARES TOTAL
--------------------------------------- ------ -----
Elizabeth M. McLaughlin (2)............................... 543,177 1.7%
Robert M. Jaffe (3)....................................... 205,580 *
Sorrento Associates
4370 La Jolla Village Drive, Suite 1040
San Diego, CA 92122
Edgar F. Berner (4)....................................... 141,891 *
Jay A. Johnson (5)........................................ 121,293 *
Corrado Federico (6)...................................... 53,617 *
Bruce A. Quinnell (7)..................................... 35,336 *
James J. McGinty (8)...................................... 32,175 *
Andrew Schuon (9)......................................... 25,492 *
Gerald A. Cook (10)....................................... 23,437 *
Thomas A. Rail (11)....................................... 11,250 *
Cynthia Cohen............................................. 1,178 *
W. Scott Hedrick.......................................... 413 *
All executive officers and directors as a group
(14 persons) (12)......................................... 1,253,825 3.8%
- ------------------
* Less than one percent.
(1) This table is based upon information supplied by officers and
directors. The Company has also reviewed previous Schedules 13D and 13G
filed with the Securities and Exchange Commission (the "SEC"). The
Company is unaware of any shareholder that beneficially owns 5% or more
of the outstanding Common Stock. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the shareholders named in
this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are
based on 31,994,300 shares outstanding on March 25, 2002, adjusted as
required by rules promulgated by the SEC. Unless otherwise indicated,
the address of each person in this table is c/o Hot Topic, Inc. 18305
E. San Jose Avenue, City of Industry, California 91748.
(2) Includes 491,118 shares subject to options exercisable within 60 days
of March 25, 2002.
(3) Includes 16,017 shares held by, and 12,663 shares subject to options
exercisable within 60 days of March 25, 2002 held by, Sorrento Ventures
II, L.P.; 13,203 shares held by, and 11,793 shares subject to options
exercisable within 60 days of March 25, 2002 held by, Sorrento Ventures
IIB, L.P.; 93,000 shares held by the Jaffe Public Charitable Remainder
Trust; 56,999 shares held by the Jaffe Public Charitable Remainder
Trust II; and 1,905 shares held by the Robert M. Jaffe Trust. Mr. Jaffe
is the President and Chief Executive Officer of Sorrento Associates,
9.
Inc., which is the general partner of Sorrento Ventures, Sorrento
Equity Partners, L.P. and Sorrento Equity Partners II, L.P. Sorrento
Equity Partners, L.P. is the general partner of Sorrento Ventures II,
L.P. and Sorrento Equity Partners II, L.P. is the general partner of
Sorrento Ventures IIB, L.P. Mr. Jaffe is also the trustee of the Jaffe
Public Charitable Remainder Trust, the Jaffe Public Charitable
Remainder Trust II and the Robert M. Jaffe Trust. Mr. Jaffe disclaims
beneficial ownership of shares held by all such entities, except to the
extent of his pecuniary or pro rata interest in such shares.
(4) Includes 129,357 shares held by The Edgar F. Berner Trust, of which Mr.
Berner is trustee, and 9,000 shares held by The Julia A. Berner Trust,
of which Mr. Berner's wife is the trustee. Also includes 3,534 shares
subject to options exercisable within 60 days of April 3, 2001 held by
Edgar F. Berner.
(5) Includes 88,043 shares subject to options exercisable within 60 days of
March 25, 2002.
(6) Includes 52,030 shares subject to options exercisable within 60 days of
March 25, 2002.
(7) Includes 33,749 shares subject to options exercisable within 60 days of
March 25, 2002.
(8) Includes 31,875 shares subject to options exercisable within 60 days of
March 25, 2002.
(9) Includes 23,905 shares subject to options exercisable within 60 days of
March 25, 2002.
(10) Includes 23,437 shares subject to options exercisable within 60 days of
March 25, 2002.
(11) Includes 11,250 shares subject to options exercisable within 60 days of
March 25, 2002.
(12) Includes shares as described in the notes above, as applicable, and
1,282 shares and 57,704 shares subject to options exercisable within 60
days of March 25, 2002, held by an officer not required to be named in
this table.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 2, 2002, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report, covering one transaction, was filed late by Mr. Jaffe.
10.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
As consideration for service on the Company's Board of Directors, each
director is reimbursed for reasonable out-of-pocket expenses in connection with
such director's travel to and attendance at Board of Directors and committee
meetings. In addition, in fiscal 2001, non-employee directors received a $4,000
fee for their attendance at each regularly scheduled quarterly Board of
Directors meeting and a $500 fee for their attendance at each special meeting or
committee meeting, except that no director could be compensated more than $3,000
for the year for attendance at meetings of a particular committee. In fiscal
2001, the Chairman of the Board received a $6,000 fee for his attendance at each
regularly scheduled quarterly Board of Directors meeting and a $750 fee for his
attendance at each special meeting or committee meeting, except that the
Chairman's compensation for attendance at meetings of a particular committee was
limited to $4,500 for the year. In fiscal 2001, the total compensation paid to
non-employee directors was $114,000. In addition, the Company paid $50,000 in
fiscal 2001 to Mr. Federico as payment for real estate consulting services
provided by Mr. Federico to the Company.
Each non-employee director of the Company also receives stock option
grants under the Directors' Plan. Only non-employee directors of the Company
receive options under the Directors' Plan. Options granted under the Directors'
Plan are intended by the Company not to qualify as incentive stock options under
the Internal Revenue Code of 1986, as amended (the "Code").
Generally, option grants under the current Directors' Plan are
non-discretionary. In fiscal 2001, the Directors' Plan provided for each
non-employee director to be automatically granted an option to purchase 10,000
shares upon becoming a member of the Board of Directors and an option to
purchase 2,500 shares of Common Stock upon each subsequent annual meeting of
shareholders of the Company. A Chairman of the Board who has not previously
served on the Company's Board of Directors will receive a stock option grant of
15,000 shares of Common Stock upon joining the Board of Directors. If the
Chairman has previously served on the Company's Board of Directors, he or she
will receive the number of shares equal to the difference between 15,000 shares
of Common Stock and the amount of his or her initial stock option grant
(received upon initially joining the Board of Directors). The Chairman of the
Board is also entitled to receive a stock option grant of 3,750 shares (rather
than 2,500 shares) of Common Stock of the Company's Common Stock upon each
annual meeting of the shareholders of the Company.
In addition, the Directors' Plan provides that the Board of Directors
may approve discretionary grants to the non-employee directors in amounts as the
Board of Directors deems appropriate. In March 2002, the Board of Directors
amended its director compensation policy to provide that commencing in fiscal
2002, each non-employee director will be granted an additional option to
purchase 1,250 shares of Common Stock upon each subsequent annual meeting of the
shareholders of the Company after the director's appointment to the Board of
Directors. The amended policy also provides that commencing in fiscal 2002, the
Chairman of the Board is entitled to receive an additional option grant of 1,875
shares (rather than 1,250 shares) of Common Stock upon each subsequent annual
meeting of the shareholders of the Company after the Chairman's appointment to
the Board of Directors.
The exercise price of options granted under the Directors' Plan is the
fair market value of the Common Stock subject to the option on the date of the
option grant. An option granted under the Directors' Plan may not be exercised
until the date upon which the optionee, or the affiliate of such optionee, as
the case may be, has provided one year of continuous service as a non-employee
director following the date of grant of such option, whereupon such option shall
become exercisable as to 25% of the option shares and 6.25% of the option shares
shall become exercisable each quarter thereafter in accordance with its terms.
The term of options granted under the Directors' Plan is ten years. In the event
of a merger of the Company with or into another corporation or a consolidation,
acquisition of assets or other change-in-control transaction involving the
Company, the vesting of each option will accelerate and the option will
terminate if not exercised prior to the consummation of the transaction.
During the last fiscal year, the Company granted options to purchase
20,625 shares of Common Stock under the Directors' Plan at an exercise price per
share of $18.71 on June 7, 2001, to the five (5) non-employee directors elected
at last year's annual meeting of the Company's stockholders. Upon the initial
appointment of Ms. Cohen as a director of the Company on September 24, 2001, the
Company granted an option to purchase 15,000 shares of Common Stock under the
Directors' Plan at an exercise price per share of $15.00 to Ms. Cohen. Upon the
initial appointment of Mr. Hedrick as a director of the Company on January 28,
2002, the Company granted an option to purchase 15,000 shares of Common Stock
under the Directors' Plan at an exercise price per share of $22.00 to Mr.
Hedrick. The option information provided in this paragraph gives effect to the 3
for 2 stock split effected in February 2002.
11.
In addition, as of fiscal 2001, each non-employee director receives a
stock grant with a value equal to $25,000 and the Chairman of the Board receives
a stock grant with a value equal to $30,000 for serving on the Board of
Directors pursuant to a director compensation plan adopted by the Board of
Directors. The stock awards are granted to each non-employee director
immediately following their election at the Company's annual meeting of
shareholders (although the Board of Directors can amend its policy and change
the grant or otherwise determine that no grant shall be made). The number of
shares subject to the stock grant will be determined by the closing price of the
Company's Common Stock on the last trading day prior to the date of grant.
Pursuant to the policy adopted by the Board of Directors, these stock grants
vest 100% on the earlier to occur of the following: (i) one year from the date
of grant, or (ii) the commencement of the next annual meeting of the
shareholders of the Company provided that the directors will be prohibited from
selling the shares they received pursuant to such stock grants until they no
longer serve on the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the fiscal years ended January 29, 2000,
February 3, 2001 and February 2, 2002, compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer during fiscal 2001 and each of
the four other most highly compensated executive officers of the Company who
earned more than $100,000 in fiscal 2001 (collectively the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------
------------------- SECURITIES
NAME AND PRINCIPAL SALARY BONUS UNDERLYING ALL OTHER
POSITION YEAR ($) ($)(1) OPTIONS(2) COMPENSATION($)(3)
- -------- ---- --- ------ ---------- ------------------
Elizabeth M. McLaughlin, 2001 $400,000 -- 250,000 (4) $23,147
Chief Executive Officer 2000 $332,862 $400,000 300,000 $17,246
and President 1999 $194,500 $250,000 84,000 $10,901
Gerald A. Cook, 2001 $300,000 $150,000 75,000 $99,429
Chief Operating Officer (5) 2000 -- -- -- --
1999 -- -- -- --
Jay A. Johnson, 2001 $216,418 $97,388 26,250 $16,530
Senior Vice President, 2000 $212,096 $122,255 30,000 $15,503
Strategic Analysis and Investor 1999 $193,329 $110,854 72,000 $6,751
Relations
James J. McGinty, 2001 $200,000 $100,000 37,500 $18,120
Chief Financial Officer (6) 2000 $90,193 $102,813 -- --
1999 -- -- -- --
Thomas A. Rail 2001 $187,500 $84,375 45,000 $5,125
Senior Vice President and 2000 -- -- -- --
General Manager, Torrid (7) 1999 -- -- -- --
- ----------------
(1) 2001 amounts reflect bonuses earned in fiscal 2001 and paid fiscal
2002, 2000 amounts reflect bonuses earned in fiscal 2000 and paid in
fiscal 2001, and 1999 amounts reflect bonuses earned in fiscal 1999 and
paid in fiscal 2000.
(2) Number of shares after giving effect to 2 for 1 stock splits in
December 1999 and December 2000 and a 3 for 2 stock split in February
2002.
(3) For fiscal 2001, the amounts shown include: (i) life and long-term
disability insurance premiums: Ms. McLaughlin ($10,497), Mr. Cook
($467), Mr. Johnson ($5,452), Mr. McGinty ($333) and Mr. Rail ($417);
(ii) automobile allowance: Ms. McLaughlin ($12,650), Mr. Cook
($12,872), Mr. Johnson ($11,078), Mr. McGinty ($6,238) and Mr. Rail
($4,708); and (iii) relocation expense and relocation gross up: Mr.
Cook ($86,090) and Mr. McGinty ($11,549).
12.
(4) Includes 100,000 shares of Common Stock underlying an option granted by
the Company reflecting a stock option bonus earned in fiscal 2001 and
granted in fiscal 2002.
(5) Mr. Cook became the Company's Chief Operating Officer in January 2001.
(6) Mr. McGinty became the Company's Vice President, Finance in August 2000
and was promoted to Chief Financial Officer in February 2001.
(7) Mr. Rail became the Company's Senior Vice President and General Manager
of Torrid in May 2001. Mr. Rail's annual base salary is $250,000 for
the fiscal 2001.
13.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the 1996
Plan. As of March 25, 2002, options to purchase a total of 3,660,956 shares were
outstanding under the 1996 Plan and options to purchase 1,430,292 shares
remained available for grant thereunder. The following table sets forth each
grant of stock options made during the fiscal year ended February 2, 2002, to
each of the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM (3)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ----------------------------
NAME GRANTED(1) YEAR(2) ($/SH) DATE 5% 10%
- ---- ---------- ------- ------ ---- ----------- -----------
Elizabeth M. McLaughlin 150,000 (4) 15.6% $15.96 02/04/11 $1,505,574 $3,815,419
Gerald A. Cook 75,000 7.8% $15.96 02/04/11 $752,787 $1,907,710
Jay A. Johnson 26,250 2.7% $15.46 03/05/11 $255,221 $646,781
James J. McGinty 37,500 3.9% $15.46 03/05/11 $364,602 $923,972
Thomas A. Rail 45,000 4.7% $21.20 05/06/11 $599,965 $1,520,430
- --------------------
(1) Number of shares after giving effect to the 3 for 2 stock split in
February 2002. Options become exercisable over a 4 year period with 25%
vesting one year from the date of grant and 6.25% of the remaining
shares vesting quarterly thereafter. The options will fully vest upon a
change of control, as defined in the Company's option plans, unless the
acquiring company assumes the options or substitutes similar options.
The term of the options is ten years.
(2) Based on options to purchase 964,050 shares granted to employees in
fiscal 2001 under the 1996 Plan, including options granted to the Named
Executive Officers.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the stock price on the date of grant appreciates at the indicated
annual rate, compounded annually for the entire term of the option and
that the option is exercised and sold on the last day of its term for
the appreciated stock price. These amounts represent certain assumed
rates of appreciation only, in accordance with the rules of the SEC,
and do not reflect the Company's estimate or projection of future stock
price performance. Actual gains, if any, are dependent on the actual
future performance of the Company's Common Stock and no gain to the
optionee is possible unless the stock price increases over the option
term, which will benefit all shareholders.
(4) Excludes 100,000 shares of Common Stock underlying a grant of an option
that the Company granted in fiscal 2002 reflecting a stock option bonus
earned in fiscal 2001.
14.
AGGREGATED FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the number
and value of securities acquired upon the exercise of options by the Named
Executive Officers during fiscal 2001 and the number and value of securities
underlying unexercised options held by the Named Executive Officers as of
February 2, 2002, after giving effect to the 3 for 2 stock split effected by the
Company in February 2002:
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
-------------------------- ---------------------
SHARES
ACQUIRED ON VALUE REALIZED
NAME EXERCISE ON EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- --------------- ----------- ------------- ----------- -------------
Elizabeth M. McLaughlin 117,000 $ 1,794,150 423,243 478,257 $7,238,404 $6,045,899
Gerald A. Cook -- -- -- 75,000 -- $478,500
Jay A. Johnson 93,750 $ 1,647,353 94,417 100,613 $1,690,803 $1,557,820
James J. McGinty -- -- 18,750 78,750 $222,750 $748,050
Thomas A. Rail -- -- -- 45,000 -- $51,300
- --------------------
(1) Amounts reflected are based on the fair market value on the date of
exercise minus the exercise price and do not indicate that the
optionees sold such stock.
(2) Based on the fair market value of the Common Stock as of February 2,
2002.
15.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with Ms. McLaughlin,
its Chief Executive Officer and President, and Mr. Cook, its Chief Operating
Officer. Ms. McLaughlin's agreement terminates on January 30, 2003, and
thereafter shall be automatically extended by one (1) year on January 30 of each
year unless Ms. McLaughlin is notified of the Company's intention not to renew
her agreement at least 90 days prior to the date of such automatic renewal or
Ms. McLaughlin notifies the Company of her intention not to renew her agreement
at least 90 days prior to the date of such automatic renewal. Mr. Cook's
agreement does not provide for a specified term of employment and is terminable
at will. The agreements specify minimum base salaries as follows: Ms.
McLaughlin, $400,000 and Mr. Cook, $300,000.
In April 2001, the Company entered into an employment agreement with
Mr. Rail, the Senior Vice President and General Manager, Torrid. Pursuant to the
employment agreement, the Company agreed to pay Mr. Rail a base salary of
$250,000 per year and a target bonus of 25% of his base salary based upon the
achievement of goals established pursuant to the Company's EBIT Plan, as
approved by the Board of Directors. The employment agreement also provides for
an automobile allowance and an initial grant of an option to purchase 30,000
shares of Common Stock.
Ms. McLaughlin's, Mr. Cook's and Mr. Rail's employment agreements,
under certain circumstances, are terminable with or without cause, however, Ms.
McLaughlin, Mr. Cook and Mr. Rail are each entitled to certain benefits in the
event their employment with the Company is terminated. In the event Ms.
McLaughlin's employment is terminated without cause, Ms. McLaughlin shall remain
with the Company as a consultant for twelve months and shall receive a payment
equal to twelve months of salary in addition to continued vesting of all
unvested stock options and continued benefits during the twelve-month period.
Each of Mr. Cook's and Mr. Rail's agreements provide for a severance payment
equal to six months of continued pay and benefits in the event they are
terminated without cause by the Company.
Each of Ms. McLaughlin, Mr. Cook and Mr. Rail are entitled to immediate
vesting of all of their unvested options in the event of a "change in control"
of the Company. "Change of control" is defined in Ms. McLaughlin's agreement as
(i) the acquisition be a person or entity of at least 30% of the outstanding
shares of Common Stock of the Company or the combined voting power of the then
outstanding voting securities of the Company, (ii) a change in the composition
of the Board of Directors as a result of which fewer than two thirds of the
directors are persons who were either directors of the Company on the date of
the agreement or who were elected or nominated by a majority of such persons,
(iii) a merger, reorganization, consolidation or sale of substantially all of
the Company's assets, (iv) approval by the shareholders of a complete
liquidation or dissolution of the Company, or (v) the occurrence of any of the
events listed in (i) through (v) above with respect to a major subsidiary of the
Company. "Change in control" is defined in each of Mr. Cook's and Mr. Rail's
agreement as (i) a sale of all or substantially all of the Company's assets,
(ii) a merger or consolidation in which the Company is not the surviving
corporation and in which beneficial ownership of at least 50% of the Company's
voting securities has changed, or (iii) an acquisition by an person, entity or
group of beneficial ownership of at least 50% of the combined voting power of
the Company.
16.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS (1)
We have reviewed and discussed with management the Company's most
recent audited consolidated financial statements.
We have discussed with the independent public accountants the matters
required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended.
We have received and reviewed the written disclosures and the letter
from the independent public accountants required by Independence Standard No.
1., INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, and have
discussed with the independent public accountants their independence.
Based on the reviews and discussions referred to above, we recommend to
the Board of Directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for fiscal 2001.
AUDIT COMMITTEE
Bruce A. Quinnell, Chairman
Edgar F. Berner
Robert M. Jaffe
- ------------------
(1) The material in this report is not "solicition material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any filing
of the Company under the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Act of 1934, as amended (the "Exchange Act").
17.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION (1)
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors (the "Compensation Committee").
The Compensation Committee is appointed by the Board of Directors and is
comprised of three non-employee directors. The Compensation Committee advises
the Board of Directors on all compensation matters concerning the Company's
executive officers.
OVERALL COMPENSATION POLICY
The Compensation Committee believes that in order for the Company to
succeed it must be able to attract and retain qualified executives. The
objective of the Compensation Committee in determining the type and amount of
executive officer compensation is to provide a compensation package consisting
of a base salary, bonus, and long-term incentives in the form of stock options
that allows the Company to attract and retain talented executive officers and to
align their interests with those of shareholders.
BASE SALARY
During fiscal 2001, the base salaries for the executive officers were
intended to be competitive with salaries of similar executive positions in
comparable companies in the Company's industry. Annual adjustments in base
salaries are made effective at the beginning of the third month of the fiscal
year for which they are intended to apply and therefore reflect in large part
the prior year's business and individual performance achievements. The Chief
Executive Officer's base salary for fiscal 2001 was determined in this manner to
be $400,000 for Elizabeth McLaughlin, as noted in the summary compensation
table, based upon a 52-week fiscal year.
BONUS
Annual incentive bonuses are intended to reflect the Compensation
Committee's belief that a significant portion of the annual compensation of each
executive officer should be contingent upon the performance of the Company, as
well as the individual contribution of each officer. Accordingly, the executive
officers of the Company, including the Chief Executive Officer, participate in
an annual executive incentive bonus plan ("Incentive Plan") which provides for
cash bonuses based upon the Company's overall financial performance and the
achievement of certain specified levels of profitability for the fiscal year.
The Board of Directors, upon receiving the Compensation Committee's
recommendations, makes awards. The Compensation Committee annually establishes
targeted profitability levels for the ensuing fiscal year in conjunction with
the Company's annual financial plan. Upon the achievement of various increasing
levels of profitability above the minimum target level, the Compensation
Committee may choose to increase bonuses accrued to the Incentive Plan. The
purpose of the Incentive Plan is to reward and reinforce executive management's
commitment to achieve levels of profitability and return consistent with
increasing shareholder value.
Cash bonuses earned under the Incentive Plan are paid each year upon
completion of the Company's annual audit of the results of operations for the
previous fiscal year by the Company's outside auditors.
- ------------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any filing
of the Company under the Securities Act of 1933, as amended (the "Securities
Act") or the Securities Act of 1934, as amended (the "Exchange Act").
18.
LONG TERM INCENTIVES
The final portion of the executive officers' compensation during fiscal
2001 consisted of incentive stock options as listed in this Proxy Statement in
the table entitled "Option Grants in Last Fiscal Year." It is this award that
the Company has utilized to provide long-term incentives.
CHIEF EXECUTIVE OFFICER COMPENSATION
As Chief Executive Officer and President of the Company, Ms. McLaughlin
received a base salary in 2001 at an annual rate of $400,000. During fiscal
2001, as part of her overall compensation package, Ms. McLaughlin was granted an
option under the 1996 Plan to purchase a total of 150,000 shares of Common Stock
at an exercise price of $15.96 per share. Further, Ms. McLaughlin was eligible
to earn a bonus under the Company's Incentive Plan.
Among the factors considered by the Compersation Committee in its
evaluation of Ms. McLaughlin's performance in fiscal 2001 were net income
results, new Company and Torrid store openings, the Company's performance
compared to the Company's internal plan and a "Peer Group" performance, and the
further strengthening of the Company's personnel and systems infrastructure.
Upon the Compensation Committee's recommendation, the Board of
Directors determined that Ms. McLaughlin earned an incentive bonus award for
fiscal 2001 under the Incentive Plan based substantially on the financial
performance of the Company in fiscal 2001. On that basis, the Committee
discussed with Ms. McLaughlin the alternatives of an incentive bonus award of
$400,000 for the fiscal year or a grant of an option to purchase 100,000 shares
of Common Stock. Based on Ms. McLaughlin's input, in March 2002, the Company
granted her an option to purchase 100,000 shares at an exercise price of $22.99
per share under the 1996 Plan, subject to the Company's standard vesting
schedule pursuant to which the option will become exercisable over a four year
period with 25% vesting one year from the date of grant and 6.25% of the
remaining shares vesting quarterly thereafter.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain executive officers in a taxable year. At this time, the amount of
compensation (as defined for Code Section 162(m) purposes) paid to the Company's
executive officers does not exceed the $1 million pay limit and will most likely
not be affected by the statute and regulations in the near future. Compensation
above $1 million may be deducted if it is "performance-based compensation"
within the meaning of the Code.
The Compensation Committee has determined that stock options granted
under the 1996 Plan with an exercise price at least equal to the fair market
value of the Common Stock on the date of grant shall be treated as
"performance-based compensation."
COMPENSATION COMMITTEE
Robert M. Jaffe
Andrew Schuon
Bruce A. Quinnell
19.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Jaffe, Schuon and Quinnell currently serve as members of the
Compensation Committee. Compensation of Messrs. Jaffe, Schuon and Quinnell as
well as the other non-employee members of the Board of Directors, is determined
by the entire Board of Directors with a view to attracting and retaining
talented individuals to serve as directors. No executive officer of the Company
serves as a member of the Board of Directors or Compensation Committee of any
entity that has one or more executive officers serving as a member of the Board
of Directors of Compensation Committee.
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total returns for
the Company, the Nasdaq CRSP Retail Trade Index, and the Nasdaq Market Index for
the period that commenced February 2, 1997 and ended on February 2, 2002. The
graph assumes that all dividends have been reinvested (there have been no
dividends declared by the Company other than stock dividends).
COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN*
Among Hot Topic, Inc. and the Nasdaq stock market (U.S.) Index
And the Nasdaq retail trade index
[PERFORMANCE MEASUREMENT GRAPH HERE]
Data presented below
2/02/97 6/30/97 12/31/97 6/30/98 1/30/99 6/30/99 1/29/00 6/30/00 2/03/01 6/30/01 2/02/02
------- ------- -------- ------- ------- ------- ------- ------- ------- ------- -------
HOT TOPIC, INC. 100.00 113.93 115.19 120.25 65.19 136.71 174.05 324.05 496.20 629.88 678.69
NASDAQ RETAIL TRADE INDEX 100.00 109.68 129.18 171.34 185.66 195.35 182.13 163.58 187.82 192.08 212.20
NASDAQ MARKET INDEX 100.00 104.67 114.34 137.47 183.66 196.20 285.60 288.21 200.82 158.25 142.18
- ---------------
(1) This section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act whether made before or after the
date hereof and irrespective of any general incorporation language in any such
filing.
20.
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he or she may
be required to pay in actions or proceedings which he or she is or may be made a
party by reason of his or her position as a director, officer or other agent of
the Company, and otherwise to the fullest extent permitted under California law
and the Company's Bylaws. The Company has also entered into and may in the
future enter into employment agreements with certain of its executive officers.
See "Employment Agreements and Termination of Employment and Change-in-Control
Arrangements."
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Jay A. Johnson
----------------------------------
JAY A. JOHNSON
Assistant Secretary
May 10, 2002
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2002 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY OR ASSISTANT SECRETARY, HOT
TOPIC, INC., 18305 E. SAN JOSE AVENUE, CITY OF INDUSTRY, CALIFORNIA 91748.
21.
HOT TOPIC, INC.
ANNUAL MEETING OF SHAREHOLDERS
JUNE 13, 2002
10:00 A.M.
18305 E. SAN JOSE AVENUE
CITY OF INDUSTRY, CA 91748
HOT TOPIC, INC.
18305 E. SAN JOSE AVENUE
CITY OF INDUSTRY, CA 91748 PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
OF SHAREHOLDERS OF HOT TOPIC, INC. (THE "COMPANY") ON JUNE 13, 2002.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINEES LISTED IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
By signing the proxy, you revoke all prior proxies and appoint Elizabeth M.
McLaughlin, Jay A. Johnson, and Jim McGinty, and each of them, as attorneys and
proxies of the undersigned with full power of substitution, to vote the
undersigned's shares on the matters shown on the reverse side, and at any and
all continuations, adjournments or postponements thereof with all powers that
the undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the Annual Meeting of Shareholders of the Company.
SEE REVERSE FOR VOTING INSTRUCTIONS.
PLEASE DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. Election of directors to hold office until the next Annual Meeting of
Shareholders and until their successors are elected.
01 Edgar F. Berner |_| Vote FOR all |_| Vote WITHHELD
02 Cynthia Cohen Nominees from all nominees
03 Corrado Federico (except as marked)
04 W. Scott Hedrick
05 Elizabeth M. McLaughlin
06 Bruce A. Quinnell
07 Andrew Schuon
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY ----------------------------------------
INDICATED NOMINEE, WRITE THE NUMBER NEXT TO THE | |
NAME(S) OF SUCH NOMINEE(S) IN THE BOX PROVIDED TO THE | |
RIGHT.) | |
----------------------------------------
2. To approve the amendment to the Company's |_| For |_| Against |_| Abstain
Amended and Restated Articles of
Incorporation to increase the number of
shares of authorized Common Stock from
50,000,000 to 150,000,000 shares.
3. Ratification of the selection of Ernst & |_| For |_| Against |_| Abstain
Young LLP as independent auditors of the
Company for the fiscal year ending February
1, 2003.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
ADDRESS CHANGE? MARK BOX |_|
INDICATE CHANGES BELOW: DATE:__________________________
SIGNATURE(S):__________________
NAME OF SHAREHOLDER: __________
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S)
APPEAR ON PROXY. IF HELD IN JOINT TENANCY,
ALL PERSONS MUST SIGN. TRUSTEES,
ADMINISTRATORS, ETC., SHOULD INCLUDE THEIR
TITLE AND AUTHORITY. CORPORATIONS SHOULD
PROVIDE FULL NAME OF CORPORATION AND TITLE
OF AUTHORIZED OFFICER SIGNING THE PROXY.