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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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Notes:
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HOT TOPIC, INC.
3410 Pomona Boulevard
Pomona, California 91768
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 27, 1998
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
Wednesday, May 27, 1998 at 10:00 a.m. local time at 3410 Pomona Boulevard,
Pomona, California 91768, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1996 Equity Incentive Plan, as amended to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 500,000 shares.
3. To approve the Company's 1996 Non-Employee Director Stock Option Plan,
as amended to (i) increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 50,000 shares, (ii)
provide for an automatic grant to new directors of options to purchase
5,000 shares upon becoming a member of the Board of Directors, and (iii)
provide for an automatic grant to directors of options to purchase 1,250
shares upon each annual meeting of shareholders of the Company.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending January 30, 1999.
5. 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 17, 1998,
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.
By Order of the Board of Directors
Jay A. Johnson
Assistant Secretary
Pomona, California
April 30, 1998
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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HOT TOPIC, INC.
3410 Pomona Boulevard
Pomona, California 91768
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
May 27, 1998
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 (the "Company"), for use at the Annual
Meeting of Shareholders to be held on May 27, 1998, 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 3410 Pomona Boulevard, Pomona, California 91768.
The Company intends to mail this proxy statement and accompanying proxy card on
or about April 30, 1998 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
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 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 service.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April
17, 1998 will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 17, 1998 the Company had outstanding and entitled
to vote 4,783,144 shares of Common Stock.
Except as provided below, 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.
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
Assistant Secretary of the Company at the Company's principal executive office,
3410 Pomona Boulevard, Pomona, California 91768, 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.
1.
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SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 1999 Annual Meeting of Shareholders must be received by the Company
not later than December 26, 1998 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. Shareholders are also advised to
review the Company's Bylaws, which contain additional requirements with respect
to advance notice of shareholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are seven nominees for the seven Board positions presently authorized
pursuant to the Company's Bylaws. 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.
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, subject to
the discretionary power to cumulate votes. 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 cast
at the meeting 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:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Robert M. Jaffe.......... 46 Chairman of the Board of Directors
Orval D. Madden.......... 49 President, Chief Executive Officer and Director
Edgar F. Berner.......... 66 Director
Stanley E. Foster........ 70 Director
Andrew Schuon............ 33 Director
Corrado Federico......... 57 Director
Cece Smith............... 53 Director
</TABLE>
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.
Orval D. Madden founded Hot Topic in 1988, and has been the Company's
President and Chief Executive Officer and a Director since its inception. Prior
to founding Hot Topic, Mr. Madden was a Senior Vice President of Federated
Department Stores' Children's Place and Accessory Place divisions, and was a
Divisional Vice President for Carter-Hawley-Hale Stores' Broadway and
Weinstock's Department Store division. In 1993, Mr. Madden was recognized as
regional California retailing "Entrepreneur Of The Year" in a competition
sponsored by Ernst & Young, Merrill Lynch, and Inc. Magazine.
2.
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Edgar F. Berner has been a Director of the Company since 1990. Since 1991,
Mr. Berner has served as Chairman of the Board 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. Prior to forming Sweet Factory, Mr. Berner was co-
founder and Executive Vice President of Weekend Exercise Company. He has also
held management positions with Fashion Conspiracy and The Price Club, and
formerly served on the board of directors of Clothestime, Inc. and Edison
Brothers. Mr. Berner currently serves as a director of Garden Fresh, Inc.
Stanley E. Foster has been a Director of the Company since 1990. Mr.
Foster is the President and CEO of Foster Investment Corporation, and the
Chairman of Hang Ten International. He is also a director of Postal Annex,
Accucom, Western Financial Savings Bank, WestCorp, and a former Chairman of the
Executive Committee of Pace Membership Warehouse, Inc.
Andrew Schuon has been a director of the Company since January 1998. Since
March 1998, Mr. Schuon has been Executive Vice President/General Manager of
Warner Bros. Records Inc. From 1992 to 1997, Mr. Schuon served as Executive
Vice President of MTV where he was responsible for programming, music,
production and talent.
Corrado Federico has been director of the Company since December 1997. Mr.
Federico is also a director of Bebe, Inc., a contemporary women's fashion chain
with approximately 90 stores throughout the United States and the President of
Corado, Inc., a land development company specializing in affordable housing.
From 1986 to 1991, Mr. Federico served as President and CEO of ESPRIT, Inc.'s
United States apparel, retail and mail order operations.
Cece Smith has been a Director of the Company since August 1994. Since
September 1986, Ms. Smith has been a General Partner of Phillips-Smith Specialty
Retail Group, L.P., a retail venture capital investment firm. Prior to founding
Phillips-Smith, Ms. Smith was an Executive Vice President of Pearle Health
Services, Inc. and President of Pearle's Medical Division. Ms. Smith serves as
a director of several private retail companies including HSJ Holdings, Inc., a
jewelry retailer and manufacturer doing business as Silverman's Jewelers, and
Cheap Tickets, Inc., a provider of discount airline tickets over the telephone
and internet. Ms. Smith served as the Chairman of the Federal Reserve Bank of
Dallas from January 1994 to December 1996.
BOARD COMMITTEES AND MEETINGS
During fiscal 1997 the Board of Directors held four meetings. The Board
has an Audit Committee, a Compensation Committee, a Nominating Committee and a
Real Estate 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 the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. During fiscal 1997, the Audit Committee was composed of
three non-employee directors: Messrs. Jaffe, Berner and Jess Marzak, until Mr.
Marzak resigned from the Board on December 23, 1997. The Audit Committee is
currently composed of three non-employee directors: Messrs. Foster, Berner and
Ms. Smith. It met one time during fiscal 1997.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants and
otherwise determines compensation levels and performs such other functions
regarding compensation as the Board may delegate. During fiscal 1997, the
Compensation Committee was composed of three non-employee directors: Messrs.
Jaffe, Foster and Marzak, until Mr. Marzak resigned from the Board on December
23, 1997. The Compensation Committee is currently composed of one employee
director and three non-employee directors: Messrs. Madden, Jaffe, Foster and
Schuon. It met five times during fiscal 1997.
The Nominating Committee evaluates and recommends individuals to be
nominated for election to the Board. The Nominating Committee is currently
composed of, and was composed of in fiscal 1997, one employee director and two
non-employee directors: Messrs. Madden, Jaffe and Berner. It met one time
during fiscal 1997. No procedure has been established for the consideration of
nominees recommended by shareholders.
3.
<PAGE>
The Real Estate Committee evaluates and approves potential store sites.
During fiscal 1997, the Real Estate Committee was composed of one employee
director and three non-employee directors: Messrs. Madden and Berner, and Ms.
Smith, and George Peyser, until Mr. Peyser resigned from the Board on January
23, 1998. The Real Estate Committee is currently composed of one employee
director and three non-employee directors: Messrs. Madden, Berner, Federico and
Ms. Smith. It met fifteen times during fiscal 1997.
During fiscal 1997, each Board member attended 75% or more of the aggregate
of the meetings of the Board and of the committees on which he or she served,
held during the period for which he or she was a director or committee member,
respectively.
PROPOSAL 2
APPROVAL OF 1996 EQUITY INCENTIVE PLAN, AS AMENDED
In January 1993, the Company adopted, and the shareholders subsequently
approved, the Company's 1993 Stock Option Plan (the "1993 Plan"). In June 1996,
the Company adopted, and the shareholders subsequently approved, an amended and
restated version of the 1993 Plan, and retitled it the 1996 Equity Incentive
Plan (the "1996 Plan"). Under the 1996 Plan, 750,000 shares of the Company's
Common Stock are reserved for issuance pursuant to the exercise of stock awards
granted to employees, directors and consultants. As of March 10, 1998, options
covering an aggregate of 726,425 shares of the Company's Common Stock had been
granted, and there remained 23,575 shares of the Company's Common Stock reserved
for issuance under the 1996 Plan.
In February 1998, the Board approved an amendment to the 1996 Plan, subject
to shareholder approval, to increase the number of shares authorized for
issuance under the 1996 Plan to 1,250,000 shares. The board adopted this
amendment to ensure that the Company can continue to grant stock options to
employees at levels determined appropriate by the Board and the Compensation
Committee.
Shareholders are requested in this Proposal 2 to approve the 1996 Plan, as
amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the 1996 Plan, as amended. Abstentions and brokers
non-votes are counted toward a quorum but are not counted for any purpose in
determining whether a matter is approved.
If the 1996 Plan, as amended, is not approved, the Company will not be able
to grant additional options beyond the 23,575 shares remaining under the 1996
Plan, except to the extent of canceled or expired options under the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the 1996 Plan are as follows:
GENERAL
The 1996 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1996 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1996 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given an
opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of the Company. All of the
Company's approximately 1,147 (as of March 26, 1998) employees and consultants
are eligible to participate in the 1996 Plan.
4.
<PAGE>
ADMINISTRATION
The 1996 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1996 Plan and, subject to
the provisions of the 1996 Plan, to determine the persons to whom and the dates
on which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the 1996 Plan to a committee composed
of not fewer than two members of the Board, who may also be "outside directors"
within the meaning of Section 162(m) of the Code. The Board has delegated
administration of the 1996 Plan to the Compensation Committee of the Board. As
used herein with respect to the 1996 Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the 1996 Plan only to
employees (including officers) of the Company and its affiliates. Stock awards
other than incentive stock options and stock appreciation rights appurtenant
thereto may be granted only to employees, directors or consultants.
No option may be granted under the 1996 Plan to any person who, at the time
of the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. For incentive stock option
grants, the aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options are exercisable for
the first time by an optionee during any calendar year (under all such plans of
the Company and its affiliates) may not exceed $100,000.
STOCK SUBJECT TO THE 1996 PLAN
If options granted under the 1996 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the 1996 Plan.
Subject to shareholder approval of this Proposal 2, stock options granted
under the 1996 Plan may not currently exceed in the aggregate 750,000 shares of
the Company's Common Stock.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1996 Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1996 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1996 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. Deductions for compensation attributable to the
exercise of such options with exercise prices below market value could be
limited by Section 162(m). See "Federal Income Tax Information." At April 15,
1998, the closing price of the Company's Common Stock as reported on the Nasdaq
National Market System was $28.38 per share.
In the event of a decline in the value of the Company' s Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1996 Plan is deemed to be canceled and a new option granted.
The exercise price of options granted under the 1996 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
5.
<PAGE>
Option Exercise. Options granted under the 1996 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the 1996 Plan typically
vest 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. Shares covered
by options granted in the future under the 1996 Plan may be subject to different
vesting terms. The Board has the power to accelerate the time during which an
option may be exercised. In addition, options granted under the 1996 Plan may
permit exercise prior to vesting, but in such event the optionee may be required
to enter into an early exercise stock purchase agreement that allows the Company
to repurchase shares not yet vested at their exercise price should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash payment
upon exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the 1996 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1996 Plan terminate 30 days after termination of the
optionee's employment or relationship as a consultant or director of the Company
or any affiliate of the Company, unless (a) such termination is due to such
person's permanent and total disability (as defined in the Code), in which case
the option may, but need not, provide that it may be exercised at any time
within one year of such termination; (b) the optionee dies while employed by or
serving as a consultant or director of the Company or any affiliate of the
Company, or within 30 days after termination of such relationship, in which case
the option may, but need not, provide that it may be exercised (to the extent
the option was exercisable at the time of the optionee's death) within one year
of the optionee's death by the person or persons to whom the rights to such
option pass by will or by the laws of descent and distribution; or (c) the
option by its terms specifically provides otherwise. Individual options by
their terms may provide for exercise within a longer period of time following
termination of employment or the consulting relationship. The option term may
also be extended in the event that exercise of the option within these periods
is prohibited for specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1996 Plan or subject to
any option granted under the 1996 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1996 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1996 Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, to
the extent permitted by law, any surviving corporation will be required to
either assume options outstanding under the 1996 Plan or substitute similar
options for those outstanding under such plan, or such outstanding options will
continue in full force and effect. In the event that any surviving corporation
declines to assume or continue options outstanding under the 1996 Plan, or to
substitute similar options, then the time during which such options may be
exercised will be accelerated and the options terminated if not exercised during
such time. The acceleration of an option in the event of an acquisition or
similar corporate event may be viewed as an antitakeover provision, which may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1996 Plan without shareholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1996 Plan will terminate on June 14, 2006.
The Board may also amend the 1996 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the shareholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires shareholder approval in
order for the Plan to satisfy Section 422 of the Code, if applicable, or Rule
16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended (the
"Exchange
6.
<PAGE>
Act")); (b) increase the number of shares reserved for issuance upon exercise of
options; or (c) change any other provision of the Plan in any other way if such
modification requires shareholder approval in order to comply with Rule 16b-3 or
satisfy the requirements of Section 422 of the Code. The Board may submit any
other amendment to the 1996 Plan for shareholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m) of
the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1996 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and during the lifetime of the optionee, may be exercised only by the optionee.
A nonstatutory stock option may be transferred by the optionee upon such terms
and conditions set forth in the Option Agreement. In any case, the optionee may
designate in writing a third party who may exercise the option in the event of
the optionee's death. In addition, shares subject to repurchase by the Company
under an early exercise stock purchase agreement may be subject to restrictions
on transfer which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1996 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The maximum
ordinary income rate is effectively 39.6% at the present time. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on the
length of time the stock was held. For individuals, short-term capital gain is
subject to federal income tax at a maximum rate of 39.6%. Long-term capital
gains currently are generally subject to lower tax rates than ordinary income.
Under recently enacted federal income tax legislation, capital gain from the
sale of assets that have a holding period of more than one year but not more
than eighteen months is subject to federal income tax at a maximum rate of 28%.
If the holding period is more than eighteen months, the maximum stated federal
income tax rate is 20% for individuals. Slightly different rules may apply to
optionees who acquire stock subject to certain repurchase options or who are
subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1996 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon
7.
<PAGE>
exercise of the option. The capital gain or loss will be long-term or short-term
depending on the length of time the stock was held. Under recently enacted
federal income tax legislation, capital gain from the sale of assets that have a
holding period of more than one year but not more than eighteen months is
subject to federal income tax at a maximum rate of 28% for individuals. If the
holding period is more than eighteen months, the maximum stated federal income
tax rate is 20% for individuals. Slightly different rules may apply to optionees
who acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to covered employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the shareholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by shareholders.
INFORMATION REGARDING OPTION GRANTS
The following table presents certain information with respect to options
granted under the 1996 Plan for the fiscal year ended January 31, 1998 to (i)
the executive officers of the Company named in the Summary Compensation Table
under "Executive Compensation" below, (ii) all executive officers as a group and
(iii) all non-executive officer employees as a group (non-employee directors
have not been granted options under the 1996 Plan). Option grants are made by
the Board or the Compensation Committee and the dollar value and number of
shares of future grants to the executive officers named in the Summary
Compensation Table below, all executive officers as a group and all non-
executive officer employees as a group are not presently determinable. The
number of options granted under the 1996 Plan in the fiscal year ended January
31, 1998 is not necessarily indicative of the number of such options that will
be granted in the future.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1996 Equity Incentive Plan
-----------------------------------------------
Number of Shares
Name and Position Dollar Value(1) Subject to Options Granted(2)
- ----------------- --------------- -----------------------------
<S> <C> <C>
Orval D. Madden..................... $2,675,000 100,000
Jay A. Johnson...................... $1,337,500 50,000
Elizabeth M. McLaughlin............. $1,337,500 50,000
Marc R. Bertone..................... $ 668,750 25,000
Gregory J. Gillogly................. $ 267,500 10,000
All Executive Officers as a Group... $6,286,250 235,000
All Non-Executive Officer Employees
as a Group.......................... $1,588,463 87,050
</TABLE>
- ----------
(1) Represents the exercise price per share multiplied by the number of shares
underlying the option(s).
(2) Represents the number of options granted under the 1996 Plan in fiscal 1997
and is not necessarily indicative of the number of such options that will
be granted in the future.
8.
<PAGE>
PROPOSAL 3
APPROVAL OF 1996 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN, AS AMENDED
In June 1996, the Board of Directors adopted, and the shareholders
subsequently approved, the 1996 Non-Employee Directors Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides for the automatic grant of
nonstatutory stock options to purchase shares of Common Stock to Non-Employee
Directors of the Company. The maximum number of shares of Common Stock that may
be issued pursuant to options granted under the Directors' Plan is 30,000. As
of March 10, 1998, options to purchase an aggregate of 8,423 shares were
outstanding, 347 shares had been issued upon exercise of options issued under
the Directors' Plan and 21,230 shares remained available for future grants under
the Directors' Plan.
In February 1998, the Board approved an amendment to the Directors' Plan,
subject to shareholder approval, to (i) increase the number of shares authorized
for issuance under the Directors' Plan to 80,000 shares, (ii) provide for an
automatic grant to new directors of options to purchase 5,000 shares upon
becoming a member of the Board of Directors, and (iii) provide for an automatic
grant to directors of options to purchase 1,250 shares upon each annual meeting
of shareholders of the Company beginning with the annual meeting to be held on
May 27, 1998.
Shareholders are requested in this Proposal 3 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Directors' Plan, as amended.
Abstentions and brokers non-votes are counted towards a quorum but are not
counted for any purpose in determining whether a matter is approved.
If the Directors' Plan, as amended, is not approved, the Company will not
be able to grant additional options beyond the 21,230 shares remaining under the
Directors' Plan, except to the extent of canceled or expired options under the
Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
The essential features of the Directors' Plan are as follows:
PURPOSE
The purpose of the Directors' Plan is to retain the services of persons now
serving as Non-Employee Directors of the Company (as defined below), to attract
and to retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts to promote the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board has the final power to construe and interpret the Directors'
Plan and options granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board is authorized to delegate
administration of the Directors' Plan to a committee of not fewer than three
members of the Board.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to Non-
Employee Directors of the Company. A "Non-Employee Director" is defined in the
Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate. Six of the Company's
seven current directors are eligible to participate in the Directors' Plan.
STOCK SUBJECT TO THE DIRECTORS PLAN
If options granted under the Directors' Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the Directors' Plan.
9.
<PAGE>
Subject to shareholder approval of this Proposal 3, stock options granted
under the Directors' Plan may not exceed in the aggregate 30,000 shares of the
Company's Common Stock.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
Non-Discretionary Grants. Option grants under the Directors' Plan are non-
discretionary. Currently, under the Director' Plan, each Non-Employee Director
will be automatically granted an option to purchase the number of shares equal
to $30,000 divided by the price per share offered to the public of Common Stock
upon becoming a member of the Board of Directors. Thereafter, so long as the
Director continues to serve on the Board, on the date of each annual meeting of
the shareholders of the Company, the Director will be automatically granted an
option to purchase that number of shares of Common Stock determined by dividing
$20,000 by the fair market value of one share of Common Stock on the day of the
grant.
If the shareholders approve this Proposal 3, each Non-Employee Director
will be automatically granted an option to purchase 5,000 shares upon becoming a
member of the Board of Directors. Thereafter, so long as the Director continues
to serve on the Board, on the date of each annual meeting of shareholders of the
Company, the Director will be automatically granted an option to purchase 1,250
shares.
Option Exercise. An option granted under the Directors' Plan shall vest as
to 25% of the underlying shares one year following the date of grant, and as to
6.25% of the underlying shares each quarter thereafter. Such vesting is
conditioned upon continued service as a director or employee of or consultant to
the Company or any affiliate of the Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan is equal to 100% of the fair market value of the Common Stock
subject to such options on the date such option is granted.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution. During the lifetime of an optionee, an option may be exercised
only by the optionee.
The term of each option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ("Expiration Date")
ten years from the date of grant. If the optionee's service as a Non-Employee
Director of the Company terminates for any reason or for no reason, the option
will terminate on the earlier of the Expiration Date or the date 30 days
following the date of termination of service; provided, however, that if such
termination of service is due to the optionee's death, the option will terminate
on the earlier of the Expiration Date or one year following the date of the
optionee's death. In any and all circumstances, an option may be exercised
following termination of the option's service as a Non-Employee Director of the
Company only as to that number of shares as to which it was exercisable on the
date of termination of such service.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating, dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of share subject to the plan and
the class, number of shares and price per share of stock subject to outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation of the Company, a specified type
of merger or consolidation or other corporate reorganization, to the extent
permitted by law, the time during which outstanding options may be exercised
will be accelerated, provided that the options will be terminated if not
exercised prior to such event. The
10.
<PAGE>
acceleration of an option in the event of an acquisition or similar corporate
event may be viewed as an antitakeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the Directors' Plan
at any time or from time to time; provided, however, that the Board may not
amend the Directors' Plan with respect to the amount, price or timing of grants
more often than once every six months other than to comport with changes to the
Code or the Employee Retirement Income Security Act ("ERISA"). No amendment
will be effective unless approved by the shareholders of the Company within
twelve months before or after its adoption by the Board if the amendment would:
(i) increase the number of shares reserved for options under the plan; (ii)
modify the requirements as to eligibility for participation in the plan (to the
extent such modification requires shareholder approval in order for the plan to
comply with the requirements of Rule 16b-3); or (iii) modify the plan in any
other way if such modification requires shareholder approval in order for the
plan to meet the requirements of Rule 16b-3.
FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Option Plan, does not purport to be complete and
does not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Because the optionee is a director of the Company, under existing laws,
the date of taxation (and the date of measurement of taxable ordinary income)
may in some instances be deferred unless the optionee files an election under
Section 83(b) of the Code. The filing of a Section 83(b) election with respect
to the exercise of an option may affect the time of taxation and the amount of
income recognized at each such time. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of such option. Such capital gain
or loss will be long-term or short-term depending on the length of time the
stock was held. Under recently enacted federal income tax legislation, capital
gain from the sale of assets that have a holding period of more than one year
but not more than eighteen months is subject to federal income tax at a maximum
rate of 28% for individuals. If the holding period is more than eighteen
months, the maximum stated federal income tax rate is 20% for individuals.
INFORMATION REGARDING OPTION GRANTS
The following table presents certain information with respect to options
granted under the Directors' Plan for the fiscal year ended January 31, 1998 to
(i) non-employee directors (employees, officers and employee directors are not
eligible to participate in the Directors' Plan) and (ii) all non-employee
directors as a group. Option grants under the Directors' Plan are non-
discretionary. In the event the shareholders approve this Proposal 3, each non-
employee director will receive options to purchase 5,000 shares upon becoming a
member of the Board and options to purchase 1,250 shares upon each annual
meeting of shareholders of the Company beginning with the annual meeting to be
held on May 27, 1998; however, the dollar value of such options is not presently
determinable.
11.
<PAGE>
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1996 Non Employee Directors' Plan
-------------------------------------------------
Number of Shares
Name and Position Dollar Value(1) Subject to Options Granted(2)
- ----------------- --------------- -----------------------------
<S> <C> <C>
Robert M. Jaffe........................................ $20,000 717
Edgar F. Berner........................................ $20,000 717
Stanley E. Foster...................................... $20,000 717
Cece Smith............................................. $20,000 717
Andrew Schuon.......................................... -- --
Corrado Federico....................................... -- --
All Non-Employee Directors as a Group.................. $80,000 2,868
</TABLE>
- ------------
(1) Represents the exercise price per share multiplied by the number of shares
underlying the option(s).
(2) Represents the number of options granted under the Directors' Plan in
fiscal 1997 and is not necessarily indicative of the number of such options
that will be granted in the future.
PROPOSAL 4
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 January 30, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the shareholders at the Annual Meeting. 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 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
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board 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 will be required
to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
12.
<PAGE>
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 10, 1998 by: (i) each director; (ii)
each of the executive officers named in the Summary Compensation Table; (iii)
all executive officers and directors of the Company as a group; and (iv) all
those known by the Company to be beneficial owners of more than five percent of
its Common Stock:
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Number of Percent of
Directors, Officers and 5% Shareholders Shares Total
- ---------------------------------------------------- ----------------------------- ----------
<S> <C> <C>
BankAmerica Corporation (2)......................... 593,489 12.4%
555 California Street
San Francisco, CA 94104
Robert M. Jaffe (3)................................. 468,372 9.8%
Sorrento Associates, Inc.
4370 La Jolla Village Drive, Suite 1040
San Diego, CA 92122
Wellington Capital Management Co. LLP(4)............ 467,000 9.8%
75 State Street
Boston, MA 02109
Cece Smith (5)...................................... 406,438 8.5%
Phillips-Smith Specialty Retail Group III, L.P.
5080 Spectrum Drive, Suite 700 West
Dallas, TX 75248
Orval D. Madden (6)................................. 287,486 6.0%
Hot Topic, Inc.
3410 Pomona Boulevard
Pomona, CA 91768
Stanley E. Foster (7)............................... 267,613 5.6%
Foster Investment Corporation
705 12th Avenue
San Diego, CA 92101
Wall Street Associates (8).......................... 255,100 5.3%
1200 Prospect Street, Suite 100
La Jolla, CA 92037
Edgar F. Berner (9)................................. 75,337 1.6%
Elizabeth M. McLaughlin (10)........................ 29,793 *
Jay A. Johnson (11)................................. 18,377 *
Gregory J. Gillogly (12)............................ 11,938 *
Marc R. Bertone (13)................................ 11,467 *
Andrew Schuon....................................... -- --
Corrado Federico.................................... -- --
All executive officers and directors as a group
(11 persons)(14).................................... 1,576,821 32.4%
</TABLE>
___________________________
* Less than one percent.
13.
<PAGE>
(1) This table is based upon information supplied by officers, directors and
principal shareholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). 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
4,777,003 shares outstanding on March 10, 1998, adjusted as required by
rules promulgated by the SEC.
(2) Includes 509,797 shares held by Bank of America NT&SA, a wholly-owned
subsidiary of BankAmerica Corporation. Also includes an aggregate of 83,692
shares held by (i) a registered investment company managed by Robertson,
Stephens and Company Investment Management, L.P., an entity acquired by
BankAmerica Corporation in October 1997 and (ii) BankAmerica Capital Corp.,
a subsidiary of BankAmerica Financial, Inc., a subsidiary of BankAmerica
Corp.
(3) Includes 37,211 shares held by the Robert M. Jaffe Trust of which Mr. Jaffe
is Trustee. Also includes 1,981 shares held by Sorrento Associates, Inc.;
287,459 shares held by, and 278 shares subject to options exercisable
within 60 days of March 10, 1998 held by, Sorrento Ventures II, L.P.; and
141,304 shares held by, and 139 shares subject to options exercisable
within 60 days of March 10, 1998 held by, Sorrento Ventures IIB, L.P. Mr.
Jaffe is the President and Chief Executive Officer of Sorrento Associates,
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 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) All such shares are held by Wellington Management Company, LLP ("WMC") in
its capacity as a registered investment adviser under the Investment
Advisers Act of 1940, as amended. WMC disclaims beneficial ownership of all
such shares.
(5) Includes 406,021 shares held by Phillips-Smith Specialty Retail Group III,
L.P., the general partner of which is Phillips-Smith Management Company.
Ms. Smith is a general partner of Phillips-Smith Management Company. Ms.
Smith disclaims beneficial ownership of all of such shares, except to the
extent of her pecuniary or pro-rata interest in such shares. Also includes
417 shares subject to options exercisable within 60 days of March 10, 1998.
(6) Includes 12,436 shares subject to options held by Mr. Madden exercisable
within 60 days of March 10, 1998. Also includes 274,300 shares held jointly
by Orval and LeAnn Madden, and 750 shares subject to options held by LeAnn
Madden exercisable within 60 days of March 10, 1998.
(7) Includes 256,196 shares held by the Stanley E. Foster and Pauline M. Foster
Trust of which Mr. Foster is Co-Trustee. Also includes 11,417 shares
subject to options exercisable within 60 days of March 10, 1998.
(8) All such shares are held by Wall Street Associates in its capacity as a
registered investment adviser under the Investment Advisers act of 1940, as
amended. Wall Street Associates disclaims beneficial ownership of all such
shares.
(9) Includes 70,545 shares held by the Edgar F. Berner Trust, of which Mr.
Berner is Trustee, and 1,500 shares held by the Julia A. Berner Trust, of
which Mr. Berner's wife is the Trustee. Also includes 3,292 shares subject
to options exercisable within 60 days of March 10, 1998.
(10) Includes 28,688 shares subject to options exercisable within 60 days of
March 10, 1998.
(11) Includes 12,031 shares subject to options exercisable within 60 days of
March 10, 1998.
(12) Includes 10,938 shares subject to options exercisable within 60 days of
March 10, 1998.
(13) Includes 11,365 shares subject to options exercisable within 60 days of
March 10, 1998.
(14) Includes 91,751 shares subject to options exercisable within 60 days of
March 10, 1998.
14.
<PAGE>
Compliance with the Reporting Requirements of Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 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 fiscal 1997, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except the following: (i) Mr. Federico filed a late
form 3 after being named a director of the Company on December 23, 1997, and
(ii) Mr. Schuon filed a late form 3 after being named a director of the Company
on January 23, 1998.
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 and committee meetings. Prior
to February 18, 1998, non-employee directors received a $1,000 fee for their
attendance at each Board meeting and a $500 fee for their attendance at each
committee meeting, except that no director could be compensated more than $2,000
annually for meetings of a particular committee. Effective February 18, 1998,
non-employee directors receive a $4,000 fee for their attendance at each
regularly scheduled quarterly Board meeting, a $500 fee for their attendance at
each special meeting of the Board and a $500 fee for their attendance at each
committee meeting, except that no director can be compensated more than $2,000
annually for meetings of a particular committee. In fiscal 1997, the total
compensation paid to non-employee directors was $39,500.
Each non-employee director of the Company also receives stock option grants
under the 1996 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company or an affiliate of such
directors (as defined in the Code) are eligible to 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 Code.
Option grants under the Directors' Plan are non-discretionary. On the date
of each annual meeting of shareholders, each member of the Company's Board of
Directors who is not an employee of the Company and has served as a non-employee
director for at least 90 days, or an affiliate of such director, is
automatically granted under the Directors' Plan, without further action by the
Company, the Board of Directors or the shareholders of the Company, an option to
purchase the number of shares (rounded to the nearest whole share) equal to
$20,000 divided by the fair market value of one share of Common Stock on the
date of grant. No other options may be granted at any time under the Directors'
Plan. 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.
15.
<PAGE>
During the last fiscal year, the Company granted options under the
Directors' Plan covering 717 shares to each non-employee director of the Company
at an exercise price per share of $27.88. The fair market value of such Common
Stock on the date of grant was $27.88 per share (based on the closing price per
share of the Company's Common Stock as quoted on the Nasdaq National Market on
the date of grant). During fiscal 1997, George Peyser, a former director of the
Company, exercised options to purchase 347 shares under the Directors' Plan and
options to purchase 11,000 shares under the 1996 Plan. The aggregate value
realized upon exercise of such options was $235,745. As of March 10, 1998, no
other options had been exercised under the Directors' Plan.
During the last fiscal year, the Company also granted non-plan options
covering 5,000 shares to each of Mr. Federico and Mr. Schuon at an exercise
price of $20.00 and $21.63, respectively. The fair market value of such Common
Stock on the date of grant was $20.00 per share and $21.63 per share,
respectively (based on the closing price per share of the Company's Common Stock
as quoted on the Nasdaq National Market on the date of grant). The terms of
such options are substantially similar to the terms of the options granted under
the Directors' Plan.
Compensation of Executive Officers
The following table shows for the fiscal years ended February 3, 1996,
February 1, 1997 and January 31, 1998, compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer and its other four highest
compensated executive officers of the Company who earned more than $100,000 in
fiscal 1997 (collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------- ------------
Securities All Other
Name and Principal Salary Bonus Underlying Compen-
Position Year ($) ($)(1) Options sation($)
- ------------------------------- ---- -------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Orval D. Madden, 1997 $300,000 $150,000 100,000 $13,105(2)
President and Chief 1996 $200,000 $100,000 10,000 $ 8,673(2)
Executive Officer 1995 $185,000 $ 25,000 -- $ 7,531(2)
Jay A. Johnson, 1997 $166,300 $ 60,000 50,000 $ 3,418(6)
Chief Financial Officer and 1996 $144,500 $ 55,000 2,500 --
Assistant Secretary (3) 1995 $ 93,000 $ 11,000 37,500 --
Elizabeth M. McLaughlin, 1997 $170,000 $ 60,000 50,000 $ 4,494(4)
Vice President, General 1996 $148,000 $ 40,000 10,000 $ 2,202(6)
Merchandise Manager 1995 $139,000 $ 13,000 -- $ 1,305(6)
Marc R. Bertone, 1997 $162,000 $ 55,000 25,000 $ 7,171(5)
Vice President, 1996 $145,250 $ 40,000 5,000 --
Real Estate and Construction 1995 $143,000 $ 13,000 -- --
Gregory J. Gillogly, 1997 $148,500 $ 42,375 10,000 $ 4,147(6)
Vice President, Operations 1996 $ 99,436 $ 20,000 25,000 --
</TABLE>
____________________
(1) 1997 amounts reflect bonuses earned in fiscal 1997 and paid in fiscal 1998,
1996 amounts reflect bonuses earned in fiscal 1996 and paid in fiscal 1997,
and 1995 amounts reflect bonuses earned in fiscal 1995 and paid in fiscal
1996.
(2) Of these amounts $5,371, $2,679 and $2,289 represent an automobile
allowance in fiscal 1997, fiscal 1996 and fiscal 1995, respectively;
$5,240, $5,993 and $5,241 represent long-term disability insurance payments
in fiscal 1997, fiscal 1996 and fiscal 1995, respectively; and $2,493
represents life insurance premiums paid in fiscal 1997.
16.
<PAGE>
(3) Mr. Johnson joined the Company during fiscal 1995. If he had been employed
by the Company during the entire fiscal year at the same annual base, his
base salary for fiscal 1995 would have been $140,000.
(4) Of this amount $3,189 represents an automobile allowance and $1,305
represents long-term disability insurance payments.
(5) Of this amount $1,981 represents an automobile allowance and $5,190
represents long-term disability insurance payments.
(6) Represents long-term disability insurance payments.
Stock Option Grants And Exercises
The Company grants options to its executive officers under the 1996 Plan.
As of March 10, 1998, options to purchase a total of 530,429 shares were
outstanding under the 1996 Plan and options to purchase 23,575 shares remained
available for grant thereunder.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended January 31, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Number of % of Total Potential Realizable Value
Securities Options at Assumed Annual Rates of
Under- Granted to Market Stock Price Appreciation
lying Employees Exercise or Price for Option Term (3)
Options in Fiscal Base Price on Date of Expiration --------------------------
Name Granted(1) Year(2) ($/Sh) Grant Date 5% 10%
- ----------------------- ---------- ---------- ----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Orval D. Madden 100,000 31.1% $26.75 $26.75 06/05/07 $1,685,000 $4,253,000
Jay A. Johnson 50,000 15.5% $26.75 $26.75 06/05/07 $ 842,500 $2,126,500
Elizabeth M. McLaughlin 50,000 15.5% $26.75 $26.75 06/05/07 $ 842,500 $2,126,500
Marc R. Bartone 25,000 7.8% $26.75 $26.75 06/05/07 $ 421,250 $1,063,250
Gregory J. Gillogly 10,000 3.1% $26.75 $26.75 06/05/07 $ 168,500 $ 425,300
</TABLE>
____________________
(1) 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 322,050 shares granted to employees in fiscal
1997, including 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.
17.
<PAGE>
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 1997 and the number and value of securities underlying
unexercised options held by the Named Executive Officers as of January 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(1) at Fiscal Year-End(2)
Shares Acquired Value Realized ----------------------------- ---------------------------
Name on Exercise on Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- -------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Orval D. Madden............. 75,401 $1,919,242 12,436 111,623 $238,758 $217,903
Jay A. Johnson.............. 15,000 $ 331,250 12,031 62,969 $230,917 $249,083
Elizabeth M. McLaughlin..... 11,000 $ 248,000 28,688 57,812 $560,174 $144,014
Marc R. Bertone............. 11,720 $ 261,005 11,365 30,415 $220,254 $101,998
Gregory J. Gillogly......... -- -- 10,938 24,062 $159,968 $205,657
</TABLE>
____________________
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of the
Company's Common Stock.
(2) Based on the fair market value of the Common Stock as of January 31, 1998.
Amounts reflected are based on the fair market value minus the exercise
price and do not indicate that the optionee sold such stock.
Employment Agreements
The Company entered into an Employment Agreement and a Consulting Agreement
with Mr. Madden in August 1994. Such Employment Agreement and Consulting
Agreement terminated in August 1997. The terms of a new employment agreement
between the Company and Mr. Madden are currently being negotiated.
The Company entered into a letter employment agreement with Ms. McLaughlin
in August 1994, which provides for an annual salary of $120,000, subject to
adjustment by the Company, and which incorporates certain consulting
requirements. Either party may terminate the agreement without cause upon nine
months' notice, and during such nine month period, Ms. McLaughlin will serve as
a consultant to the Company (for a minimum of ten hours per week) and will be
compensated at a rate of two-thirds her most recent annual base salary. The
letter agreement prohibits Ms. McLaughlin from competing against the Company
during such time.
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee (the "Committee") of the Board of Directors. The
Committee is appointed by the Board and is comprised of three non-employee
directors and one employee director. The Committee advises the Board on all
compensation matters concerning the Company's executive officers.
Overall Compensation Policy
The Committee believes that in order for the Company to succeed it must be
able to attract and retain qualified executives. The objective of the 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
18.
<PAGE>
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 1997, 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 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 1997 was determined in this manner to be $300,000, as
noted in the summary compensation table.
Bonus
Annual incentive bonuses are intended to reflect the 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.
Awards are made by the Board upon receiving the Compensation Committee's
recommendations. 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 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.
Long Term Incentives
The final portion of the executive officers' compensation during fiscal
1997 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
During fiscal 1997, Mr. Orval Madden, President and Chief Executive Officer
of the Company and member of the Board, was eligible to participate in the same
executive compensation plans as were available to other executive officers of
the Company. Based on the performance of the Company in fiscal 1997 and the
Committee's assessment of Mr. Madden's ongoing personal performance in the
position of Chief Executive Officer, Mr. Madden received a salary increase
during 1997. Among the factors considered by the Committee in its consideration
of Mr. Madden's performance were net income results, new store openings and the
further strengthening of the Company's personnel and systems infrastructure.
Mr. Madden's annual incentive bonus award was earned under the Incentive
Plan and was based substantially on the financial performance of the Company for
the fiscal year 1997. On that basis, Mr. Madden received an annual incentive
bonus award of $150,000.
Mr. Madden was granted stock options under the 1996 Plan for 100,000 shares
of Common Stock on June 6, 1997, at the option price of $26.75 per share.
19.
<PAGE>
The Company entered into an Employment Agreement and a Consulting Agreement
with Mr. Madden in August 1994. Such Employment Agreement and Consulting
Agreement terminated in August 1997. The terms of a new employment agreement
between the Company and Mr. Madden are currently being negotiated.
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 Company's common stock on the date of grant shall be treated as
"performance-based compensation."
Compensation Committee
Robert M. Jaffe
Stanley E. Foster
Andrew Schuon
Orval Madden
Compensation Committee Interlocks and Insider Participation
Messrs. Jaffe, Foster, Schuon and Madden currently serve as members of the
Compensation Committee. Mr. Jaffe is President and Chief Executive Officer of
Sorrento Associates, Inc., which is the general partner of Sorrento Ventures and
Sorrento Equity Partners, L.P., the general partner of Sorrento Ventures II,
L.P. and Sorrento Equity Partners II, L.P., the general partner of Sorrento
Ventures IIB, L.P. Mr. Foster is a Co-Trustee of the Stanley & Pauline Foster
Trust. Mr. Madden is currently the Chief Executive Officer of the Company.
Compensation of Messrs. Jaffe, Foster and Schuon, as well as the other non-
employee members of the Board, is determined by the entire Board with a view to
attracting and retaining talented individuals to serve as directors.
Compensation of Mr. Madden is determined by the non-employee members of the
Board.
20.
<PAGE>
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 September 24, 1996 (the date on which the Company's Common
Stock was first traded on the Nasdaq National Market System) and ended on
January 31, 1998. The graph assumes that all dividends have been reinvested.
COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG HOT TOPIC, INC.,
NASDAQ CRSP RETAIL TRADE INDEX, NASDAQ MARKET INDEX
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nasdaq CRSP
Measurement Period Hot Retail Trade Nasdaq
(Fiscal Year Covered) Topic, Inc. Index Market Index
- ------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Measurement Pt-9/24/1996 $100.00 $100.00 $100.00
12/31/1996 $ 75.60 $ 93.95 $104.71
3/31/1997 $ 92.82 $ 89.36 $ 99.38
6/30/1997 $ 86.12 $100.97 $117.57
9/30/1997 $ 76.56 $114.48 $137.08
12/31/1997 $ 87.08 $110.67 $128.44
1/30/1998 $ 86.60 $112.27 $132.46
</TABLE>
_______________
(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 1933 Act or the 1934 Act whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
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 be reason of his or her position as a director, officer or other agent of
the Company, and otherwise to the full extent permitted under California law and
the Company's Bylaws.
21.
<PAGE>
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
Jay A. Johnson
Assistant Secretary
April 30, 1998
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for Fiscal 1997 is available without charge upon written request
to: Assistant Secretary, Hot Topic, Inc., 3410 Pomona Boulevard, Pomona,
California 91768.
22.
<PAGE>
HOT TOPIC, INC.
1996 EQUITY INCENTIVE PLAN
Adopted January 20, 1993
Amended July 8, 1994
Amended March 27, 1996
Amended and Restated June 14, 1996
Amended February 18, 1998
Approved by Shareholders ______, 1998
Introduction
Originally adopted on January 20, 1993 as the "1993 Stock Option Plan of
Hot Topic, Inc.," the plan is hereby amended and restated and retitled the "1996
Equity Incentive Plan."
1. Purposes.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) stock
appreciation rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
1.
<PAGE>
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "Company" means Hot Topic, Inc., a California corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a
right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(h) "Continuous Status as an Employee, Director or Consultant" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Chief Executive Officer of the Company may determine, in his or
her sole discretion, whether Continuous Status as an Employee, Director or
Consultant shall be considered interrupted in the case of: (i) any leave of
absence approved by the Board or the Chief Executive Officer of the Company,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between locations of the Company or between the Company, Affiliates or
their successors.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board.
2.
<PAGE>
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation The Nasdaq Stock
Market, the Fair Market Value of a share of common stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in common stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(2) If the common stock is quoted on The Nasdaq Stock Market (but not
on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(3) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to
3.
<PAGE>
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "Independent Stock Appreciation Right" or "Independent Right" means a
right granted pursuant to subsection 8(b)(3) of the Plan.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "Optionee" means a person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "Plan" means this Hot Topic, Inc. 1996 Equity Incentive Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(z) "Stock Appreciation Right" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(aa) "Stock Award" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
4.
<PAGE>
(bb) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "Tandem Stock Appreciation Right" or "Tandem Right" means a right
granted pursuant to subsection 8(b)(1) of the Plan.
3. Administration.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
a Stock Appreciation Right, or a combination of the foregoing; the provisions of
each Stock Award granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to a Stock
Award; whether a person shall be permitted to receive stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board, Non-
Employee Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers
5.
<PAGE>
theretofore possessed by the Board, including the power to delegate to a
subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such Subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
Notwithstanding anything in this Section 3 to the contrary, at any time the
Board or the Committee may delegate to a committee of one or more members of the
Board the authority to grant Stock Awards to eligible persons who (1) are not
then subject to Section 16 of the Exchange Act and/or (2) are either (i) not
then Covered Employees and are not expected to be Covered Employees at the time
of recognition of income resulting from such Stock Award, or (ii) not persons
with respect to whom the Company wishes to avoid the application of Section
162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply if the Board or the Committee expressly declares that
such requirement shall not apply. Any Disinterested Person shall otherwise
comply with the requirements of Rule 16b-3.
4. Shares Subject To The Plan.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate One Million Two Hundred Fifty Thousand (1,250,000)
shares of the Company's common stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall not
be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. Eligibility.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants. Notwithstanding the foregoing, no
Stock Awards shall be granted to a Director (including a Director who is an
Employee or a Consultant) prior to August 15, 1996 (or such later date as the
amendments to Rule 16b-3 adopted by the Securities and Exchange Commission
pursuant to Release No. 34-37260 become effective
6.
<PAGE>
as to the Company), unless such Director is expressly declared eligible to
participate in the Plan by action of the Board or the Committee.
(b) No person shall be eligible for the grant of an Option or an award to
purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights covering more than Two Hundred Thousand (200,000) shares of
the Company's common stock in any twelve (12) month period. This subsection 5(c)
shall not apply prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act and, following such
registration, shall not apply until (i) the earliest of: (A) the first material
modification of the Plan (including any increase to the number of shares
reserved for issuance under the Plan in accordance with Section 4); (B) the
issuance of all of the shares of common stock reserved for issuance under the
Plan; (C) the expiration of the Plan; or (D) the first meeting of shareholders
at which directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the
7.
<PAGE>
stock subject to the Option on the date the Option is granted. Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
by the Optionee upon such terms and conditions as are set forth in the Option
Agreement for such Nonstatutory Option, as the Board or the Committee shall
determine in its discretion, including (without limitation) pursuant to a
"domestic relations order" within the meaning of such rules, regulations or
interpretations of the Securities and Exchange Commission as are applicable for
purposes of Section 16 of the Exchange Act (a "DRO"). In the event of a transfer
of a Nonstatutory Option as provided in the Option Agreement, the transferee
shall be entitled to exercise such Nonstatutory Option to the extent of his or
her interest received in such transfer, subject to the terms and conditions of
the Option Agreement. Notwithstanding the foregoing, the person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the
8.
<PAGE>
shares allotted to such period and/or any prior period as to which the Option
became vested but was not fully exercised. The Option may be subject to such
other terms and conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Board may deem
appropriate. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) Termination of Employment or Relationship as a Director or Consultant.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it at the date of termination) but only within such period
of time ending on the earlier of (i) the date thirty (30) days after the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of thirty (30) days after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or
9.
<PAGE>
shorter period specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
and again become available for issuance under the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date twelve (12)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) Early Exercise. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. Terms Of Stock Bonuses And Purchases Of Restricted Stock.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
10.
<PAGE>
(a) Purchase Price. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) Transferability. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a DRO (as defined
in subsection 6(d) hereof), so long as stock awarded under such agreement
remains subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) Termination of Employment or Relationship as a Director or Consultant.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
8. Stock Appreciation Rights.
(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time
11.
<PAGE>
subject to Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the
Stock Award Agreement of grant shall incorporate all the terms and conditions at
the time necessary to assure that the subsequent exercise of such right shall
qualify for the safe-harbor exemption from short-swing profit liability provided
by Rule 16b-3 promulgated under the Exchange Act (or any successor rule or
regulation). Except as provided in subsection 5(d), no limitation shall exist on
the aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(1) Tandem Stock Appreciation Rights. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between
the exercise of the underlying Option for shares of stock and the
surrender, in whole or in part, of such Option for an appreciation
distribution. The appreciation distribution payable on the exercised Tandem
Right shall be in cash (or, if so provided, in an equivalent number of
shares of stock based on Fair Market Value on the date of the Option
surrender) in an amount up to the excess of (A) the Fair Market Value (on
the date of the Option surrender) of the number of shares of stock covered
by that portion of the surrendered Option in which the Optionee is vested
over (B) the aggregate exercise price payable for such vested shares.
(2) Concurrent Stock Appreciation Rights. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
A Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of
stock to which the Concurrent Right pertains. The appreciation distribution
payable on an exercised Concurrent Right shall be in cash (or, if so
provided, in an equivalent number of shares of stock based on Fair Market
Value on the date of the exercise of the Concurrent Right) in an amount
equal to such portion as shall be determined by the Board or the Committee
at the time of the grant of the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Concurrent Right) of the vested
shares of stock purchased under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for
such shares.
(3) Independent Stock Appreciation Rights. Independent Rights will
be granted independently of any Option and shall, except as specifically
set forth in this Section 8, be subject to the same terms and conditions
applicable to Nonstatutory Stock
12.
<PAGE>
Options as set forth in Section 6. They shall be denominated in share
equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess
of (A) the aggregate Fair Market Value (on the date of the exercise of the
Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value
(on the date of the grant of the Independent Right) of such number of
shares of Company stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date
of the exercise of the Independent Right.
9. Cancellation And Re-Grant Of Options.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the
affected holders of Options and/or Stock Appreciation Rights, the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of stock,
but having an exercise price per share not less than eighty-five percent (85%)
of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in
the case of an Incentive Stock Option) or, in the case of a 10% shareholder (as
described in subsection 5(b)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board or the Committee may grant an Option and/or Stock
Appreciation Right with an exercise price lower than that set forth above if
such Option and/or Stock Appreciation Right is granted as part of a transaction
to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 9 shall continue to be counted, for the applicable year in which it
was granted, against the maximum award of Options and Stock Appreciation Rights
permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing
of an Option and/or Stock Appreciation Right under this Section 9, resulting in
a reduction of the exercise price, shall be deemed to be a cancellation of the
original Option and/or Stock Appreciation Right and the grant of a substitute
Option and/or Stock Appreciation Right; in the event of such repricing, both the
original and the substituted Options and Stock Appreciation Rights shall be
counted against the maximum awards of Options and Stock Appreciation Rights
permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions
of this subsection 9(b) shall be applicable only to the extent required by
Section 162(m) of the Code.
13.
<PAGE>
10. Covenants Of The Company.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock under such Stock
Awards unless and until such authority is obtained.
11. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. Miscellaneous.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any part
thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed
to be the holder of, or to have any of the rights of a holder with respect to,
any shares subject to such Stock Award unless and until such person has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's Bylaws and the provisions of the California Corporations Code
(or the applicable laws of the Company's state of
14.
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incorporation if the Company's state of incorporation should change in the
future), or the right to terminate the relationship of any Consultant pursuant
to the terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d),
7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock
Award, (1) to give written assurances satisfactory to the Company as to such
person's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
15.
<PAGE>
13. Adjustments Upon Changes In Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the maximum
number of shares subject to award to any person during any twelve (12) month
period pursuant to subsection 5(c), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to such outstanding Stock Awards. Such adjustments shall be
made by the Board or the Committee, the determination of which shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group (within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors, then: (i) any surviving or acquiring corporation shall assume any
Stock Awards outstanding under the Plan or shall substitute similar Stock Awards
(including an award to acquire the same consideration paid to the shareholders
in the transaction described in this subsection 13(b)) for those outstanding
under the Plan; or (ii) in the event any surviving or acquiring corporation
refuses to assume such Stock Awards or to substitute similar awards for those
outstanding under the Plan, then, (A) with respect to Stock Awards held by
persons then performing services as Employees, Directors or Consultants, the
vesting of such Stock Awards and, if applicable, exercisability of such Stock
Awards shall be accelerated prior to such event and the Stock Awards terminated
if not exercised after such acceleration and at or prior to such event, and (B)
with respect to any other Stock Awards outstanding under the Plan, such Stock
Awards shall be terminated if not exercised prior to such event.
16.
<PAGE>
14. Amendment Of The Plan and Stock Awards.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires shareholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code);
or
(iii) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
17.
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15. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on the day before the date that is
ten (10) years following the earlier of (i) the date of the amendment and
restatement of the Plan as determined by the Board, or (ii) the date such
amendment and restatement is approved by the shareholders of the Company. No
Stock Awards may be granted under the Plan while the Plan is suspended or after
it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Stock Award was granted.
16. Effective Date Of Plan.
The Plan, as amended by the Board on June 14,1996, shall become effective
on the same day that the Company's initial public offering of shares of common
stock becomes effective. Prior to the effectiveness of such initial public
offering, the terms and conditions of the Plan as in effect prior to its
amendment by the Board on June 14, 1996 shall continue to apply. No Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
18.
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HOT TOPIC, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on June 14, 1996
Approved by Shareholders on July 9, 1996
Amended on February 18, 1998
Approved by Shareholders on ______, 1998
1. Purpose.
(a) The purpose of the 1996 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each director of Hot Topic, Inc. (the
"Company") who is not otherwise at the time of grant an employee of or
consultant to the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. Administration.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board"), unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
1.
<PAGE>
3. Shares Subject To The Plan.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate eighty thousand (80,000) shares of
the Company's common stock. Such share reserve is comprised of the thirty
thousand (30,000) shares reserved for issuance upon adoption of the Plan plus an
additional fifty thousand (50,000) reserved for issuance in February, 1998. If
any option granted under the Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not purchased under
such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. Eligibility.
Options shall be granted only to Non-Employee Directors of the Company.
5. Non-Discretionary Grants.
(a) Each person who is elected or appointed for the first time to be a Non-
Employee Director shall automatically be granted, upon the date of his or her
initial election or appointment, an option to purchase five thousand (5,000)
shares of common stock (an "Initial Grant").
(b) On the date of each annual meeting of shareholders, commencing with the
1998 annual meeting, each person who is then a Non-Employee Director shall
automatically be granted an option to purchase one thousand two hundred fifty
(1,250) shares of common stock (an "Annual Grant"). Notwithstanding the
foregoing, a Non-Employee Director shall not be entitled to an Annual Grant if
(i) such Non-Employee Director has served as a Non-Employee Director for less
than three (3) months, or (ii) such Non-Employee failed to attend at least
seventy five percent (75%) of the meetings (A) of the Board which occurred while
the Non-Employee Director was a member of the Board and (B) of each committee of
which such Non-Employee Director was a member.
6. Option Provisions.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ("Expiration Date")
ten (10) years from the date of grant. If the optionee's service as a Non-
Employee Director or employee of or consultant to the Company or any Affiliate
terminates for any reason or
2.
<PAGE>
for no reason, the option shall terminate on the earlier of the Expiration Date
or the date three (3) months following the date of termination of such service;
provided, however, that if such termination of service is due to the optionee's
death, the option shall terminate on the earlier of the Expiration Date or
twelve (12) months following the date of the optionee's death. In any and all
circumstances, an option may be exercised following termination of the
optionee's service as a Non-Employee Director or employee of or consultant to
the Company or any Affiliate only as to that number of shares as to which it was
exercisable as of the date of termination of all such service under the
provisions of subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent (100%)
of the fair market value of the stock subject to such option on the date such
option is granted.
(c) Payment of the exercise price of each option is due in full in cash
upon any exercise when the number of shares being purchased upon such exercise
is less than 100 shares; but when the number of shares being purchased upon an
exercise is 100 or more shares, the optionee may elect to make payment of the
exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise;
(ii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its fair market
value on the date preceding the date of exercise; or
(iii) Provided that at the time of the exercise the Company's common
stock is publicly traded and quoted regularly in The Wall Street Journal,
payment pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board which results in the receipt of cash (or check) by the
Company either prior to the issuance of shares of the Company's common stock or
pursuant to the terms of irrevocable instructions issued by the optionee prior
to the issuance of shares of the Company's common stock.
(iv) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) and 6(c)(iii) above.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a domestic relations order, and shall
be exercisable during
3.
<PAGE>
the lifetime of the person to whom the option is granted only by such person (or
by his guardian or legal representative) or transferee pursuant to such an
order. Notwithstanding the foregoing, the optionee may, by delivering written
notice to the Company in a form satisfactory to the Company, designate a third
party who, in the event of the death of the optionee, shall thereafter be
entitled to exercise the option.
(e) The option shall become exercisable in installments over a period of
four (4) years from the date of grant as follows: twenty-five percent (25%)
shall be exercisable commencing on the date one year after the date of grant of
the option and six and one-quarter percent (6.25%) shall be exercisable at the
end of each calendar quarter thereafter, provided that the optionee has, during
the entire period prior to such vesting date, continuously served as a Non-
Employee Director or employee of or consultant to the Company or any Affiliate
of the Company, whereupon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares represented
by that installment.
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and (ii)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
option has been registered under a then-currently-effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii), as to any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the circumstances under
the then applicable securities laws. The Company may require any optionee to
provide such other representations, written assurances or information which the
Company shall determine is necessary, desirable or appropriate to comply with
applicable securities laws as a condition of granting an option to the optionee
or permitting the optionee to exercise the option. The Company may, upon advice
of counsel to the Company, place legends on stock certificates issued under the
Plan as such counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to, legends restricting
the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
4.
<PAGE>
7. Covenants Of The Company.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. Use Of Proceeds From Stock.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
9. Miscellaneous.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan, or in any instrument executed pursuant thereto,
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate in any capacity or shall affect any right of the
Company, its Board or shareholders or any Affiliate to remove any Non-Employee
Director pursuant to the Company's Bylaws and the provisions of the laws of the
Company's state of incorporation.
(c) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it shall be a
condition precedent to the Company's obligation to issue or transfer shares to a
Non-
5.
<PAGE>
Employee Director, or to evidence the removal of any restrictions on transfer,
that such Non-Employee Director make arrangements satisfactory to the Company to
insure that the amount of any federal or other withholding tax required to be
withheld with respect to such sale or transfer, or such removal or lapse, is
made available to the Company for timely payment of such tax.
(e) As used in this Plan, "fair market value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange
or a national market system, including without limitation The Nasdaq Stock
Market, the fair market value of a share of common stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in common stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) If the common stock is quoted on The Nasdaq Stock Market (but not
on the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the fair market value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(iii) In the absence of an established market for the common stock, the
fair market value shall be determined in good faith by the Board.
10. Adjustments Upon Changes In Stock.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is
6.
<PAGE>
not the surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
or any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or any Affiliate of the
Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then the time during which
options outstanding under the Plan may be exercised shall be accelerated prior
to such event and the options terminated if not exercised after such
acceleration and at or prior to such event.
11. Amendment Of The Plan.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. Except as
provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the shareholders of the Company
within twelve (12) months before or after the adoption of the amendment if such
amendment requires shareholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, Section 162(m) of
the Internal Revenue Code or any Nasdaq or securities exchange requirements.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii) such
person consents in writing.
12. Termination Or Suspension Of The Plan.
(a) The Board may suspend or terminate the Plan at any time. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
7.
<PAGE>
13. Effective Date Of Plan; Conditions Of Exercise.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
shareholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
8.
<PAGE>
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HOT TOPIC, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON MAY 27, 1998
The undersigned hereby appoints Orval D. Madden and Jay A. Johnson,
and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of Hot
Topic, Inc. which the undersigned may be entitled to vote at the Annual
Meeting of Shareholders of Hot Topic, Inc. to be held at the Company's
offices located at 3410 Pomona Boulevard, Pomona, California, 91768 on
Wednesday, May 27, 1998 at 10:00 a.m. local time, and at any and all
postponements, continuations and adjournments 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 meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
FOR ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, AND 4, AS
MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to serve for the ensuing year and until their
successors are elected.
[_] FOR all nominees [_] WITHHOLD AUTHORITY to
listed below (except as vote for all nominees
marked to the contrary below). listed below.
NOMINEES: Robert M. Jaffe, Orval D. Madden, Edgar F. Berner,
Stanley E. Foster, Andrew Schuon, Corrado Federico,
Cece Smith
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE THE NAME(S) OF SUCH
NOMINEE(S) BELOW:
-------------------------------------------------------
-------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To approve the Company's 1996 Equity Incentive Plan, as
amended to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 500,000
shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on other side)
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<PAGE>
- --------------------------------------------------------------------------------
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To approve the Company's 1996 Non-Employee Director Stock Option
Plan, as amended to (i) increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 50,000
shares, (ii) provide for an automatic grant to new directors of
options to purchase 5,000 shares upon becoming a member of the
Board of Directors, and (iii) provide for an automatic grant to
directors of options to purchase 1,250 shares upon each annual
meeting of shareholders of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 4.
PROPOSAL 4: To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending January 30,
1999.
[_] FOR [_] AGAINST [_] ABSTAIN
Date:____________________ 1998
____________________________
____________________________
SIGNATURE(S)
Please sign exactly as
your name appears hereon.
If the stock is registered
in the names of two or
more persons, each should
sign. Executors,
administrators, trustees,
guardians and attorneys-
in-fact should add their
titles. If signer is a
corporation, please give
full corporate name and
have a duly authorized
officer sign, stating
title. If signer is a
partnership, please sign
in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
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