<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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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(4) Proposed maximum aggregate value of transaction:
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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:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
HOT TOPIC, INC.
3410 Pomona Boulevard
Pomona, California 91768
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 1, 1999
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 Tuesday,
June 1, 1999 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 ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending January 29,
2000.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 19,
1999, as the record date for the determination of shareholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof. If you plan on attending the Annual Meeting, please call
Jay A. Johnson at the Company at 909-869-6373.
By Order of the Board of Directors
/s/ Jay A. Johnson
Jay A. Johnson
Assistant Secretary
Pomona, California
April 28, 1999
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.
<PAGE>
HOT TOPIC, INC.
3410 Pomona Boulevard
Pomona, California 91768
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
June 1, 1999
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 June 1, 1999, 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 28, 1999 to all shareholders entitled to vote at the Annual
Meeting. If you plan on attending the Annual Meeting, please call Jay A.
Johnson at the Company at 909-869-6373.
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
19, 1999 will be entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 19, 1999 the Company had outstanding and entitled
to vote 4,595,931 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
<PAGE>
Shareholder Proposals
Proposals of shareholders that are intended to be presented at the
Company's 2000 Annual Meeting of Shareholders must be received by the Company
not later than January 2, 2000 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.
Unless a stockholder who wishes to bring a matter that will not be included
in the proxy statement before the stockholders at the Company's 2000 annual
meeting notifies the Company of such matter prior to March 17, 2000, management
will have discretionary authority to vote all shares for which it has proxies in
opposition to such matter.
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. 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.............................. 47 Chairman of the Board of Directors
Orval D. Madden.............................. 50 President, Chief Executive Officer and Director
Edgar F. Berner.............................. 67 Director
Stanley E. Foster............................ 71 Director
Andrew Schuon................................ 34 Director
Corrado Federico............................. 58 Director
Bruce A. Quinnell............................ 50 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.
2
<PAGE>
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.
Edgar F. Berner has been a Director of the Company since 1990. Mr. Berner
is the Vice President, Capital Development of Real Age, Inc. From 1991 to
February 1999, Mr. Berner 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. and Barbeques Galore Ltd.
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, WFS Financial, Carttronics, Inc.,
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. Mr. Schuon is also a director of E4L, 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.
Bruce A. Quinnell has been a director of the Company since September 1998.
Mr. Quinnell is the President and Chief Operating Officer of Borders Group, Inc.
From 1994 to 1997, Mr. Quinnell was the President and Chief Operating Officer of
Waldenbooks.
Directors Not Continuing After the Annual Meeting
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 and Cheap Tickets, Inc., a
publicly-held 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. Ms. Smith has decided not to stand
for re-election at the Annual Meeting.
Board Committees and Meetings
During fiscal 1998 the Board of Directors held five 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. The Audit Committee is currently composed of four non-
employee directors: Messrs. Foster, Berner, Quinnell and Ms. Smith. It met two
times during fiscal 1998.
3
<PAGE>
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. The Compensation Committee is
currently composed of one employee director and four non-employee directors:
Messrs. Madden, Jaffe, Foster, Schuon and Quinnell. It met two times during
fiscal 1998.
The Nominating Committee evaluates and recommends individuals to be
nominated for election to the Board. The Nominating Committee is currently
composed of one employee director and two non-employee directors: Messrs.
Madden, Jaffe and Berner. It met one time during fiscal 1998. No procedure has
been established for the consideration of nominees recommended by shareholders.
The Real Estate Committee evaluates and approves potential store sites.
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 1998.
During fiscal 1998, 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
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 29, 2000 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 2.
4
<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 1, 1999 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)...................................... 511,375 11.1%
555 California Street
San Francisco, CA 94104
Wellington Capital Management Co. LLP(3)......................... 423,000 9.2%
75 State Street
Boston, MA 02109
Robert M. Jaffe (4).............................................. 306,710 6.6%
Sorrento Associates, Inc.
4370 La Jolla Village Drive, Suite 1040
San Diego, CA 92122
Cece Smith (5)................................................... 291,256 6.3%
Phillips-Smith Specialty Retail Group III, L.P.
5080 Spectrum Drive, Suite 700 West
Dallas, TX 75248
Stanley E. Foster (6)............................................ 273,177 5.9%
Foster Investment Corporation
705 12th Avenue
San Diego, CA 92101
Orval D. Madden (7).............................................. 228,434 4.9%
Edgar F. Berner (8).............................................. 69,221 1.5%
Elizabeth M. McLaughlin (9)...................................... 33,512 *
Jay A. Johnson (10).............................................. 41,088 *
Marc R. Bertone (11)............................................. 14,585 *
Andrew Schuon(12)................................................ 1,563 *
Corrado Federico(13)............................................. 1,563 *
Bruce A. Quinnell................................................ -- --
All executive officers and directors as a group 1,261,109 26.4%
(11 persons)(14).................................................
</TABLE>
- ----------------------------
* Less than one percent.
5
<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
4,624,431 shares outstanding on March 1, 1999, adjusted as required by
rules promulgated by the SEC.
(2) Includes (i) 50,150 shares held by NB Holdings Corporation, a wholly-owned
subsidiary of BankAmerica Corporation, (ii) 50,150 shares held by
Nationsbanc Montgomery Securities Holdings Company, an entity affiliated
with BankAmerica Corporation, (iii) 50,150 shares held by Nationsbanc
Montgomery Securities LLC, an entity affiliated with BankAmerica
Corporation, (iv) 8,928 shares held by BankAmerica Capital Corporation, an
entity affiliated with BankAmerica Corporation, (v) 447,517 shares held by
Bank of America NT&SA, an entity affiliated with BankAmerica Corporation,
(vi) 402,766 shares held by BankAmerica Ventures, an entity affiliated with
BankAmerica Corporation and (vii) 44,751 shares held by BA Venture Partners
I, an entity affiliated with BankAmerica Corporation. By virtue of the
corporate relationships of the various BankAmerica Corporation entities,
BankAmerica Corporation, the parent entity, may be deemed to posses
indirect beneficial ownership of shares beneficially owned directly by its
subsidiaries. Similarly, high tier BankAmerica Corporation subsidiaries may
be deemed to possess indirect beneficial ownership of shares beneficially
owned directly by lower tier BankAmerica Corporation subsidiaries.
(3) 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.
(4) Includes 74,060 shares held by the Robert M. Jaffe Trust of which Mr. Jaffe
is Trustee. Also includes 10,917 shares held by Sorrento Associates, Inc.;
64,228 shares held by, and 1,069 shares subject to options exercisable
within 60 days of March 1, 1999 held by, Sorrento Ventures II, L.P.; and
155,704 shares held by, and 732 shares subject to options exercisable
within 60 days of March 1, 1999 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.
(5) Includes 281,021 shares held by and 1,802 shares subject to options
exercisable within 60 days of March 1, 1999 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.
(6) Includes 260,376 shares held by The Stanley E. Foster and Pauline M. Foster
Trust of which Mr. Foster is co-trustee. Also includes 12,801 shares
subject to options exercisable within 60 days of March 1, 1999.
(7) Includes 44,375 shares subject to options held by Mr. Madden exercisable
within 60 days of March 1, 1999. Also includes 177,897 shares held jointly
by The Orval and LeAnn Madden Trust of which Mr. Madden is the trustee, and
5,500 shares held by and 662 shares subject to options exercisable within
60 days of March 1, 1999 held by LeAnn Madden.
(8) Includes 62,545 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 5,176 shares subject
to options exercisable within 60 days of March 1, 1999.
(9) Includes 29,250 shares subject to options exercisable within 60 days of
March 1, 1999.
(10) Includes 37,906 shares subject to options exercisable within 60 days of
March 1, 1999.
(11) Includes 14,377 shares subject to options exercisable within 60 days of
March 1, 1999.
(12) Includes 1,563 shares subject to options exercisable within 60 days of
March 1, 1999.
(13) Includes 1,563 shares subject to options exercisable within 60 days of
March 1, 1999.
6
<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 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with, except the following: one late Form 4 was filed for
Ms. Smith regarding one transaction involving 3,000 shares.
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. 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 1998, the total
compensation paid to non-employee directors was $112,500.
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. Each non-
employee director is automatically granted an option to purchase 5,000 shares
upon becoming a member of the Board of Directors and an option to purchase 1,250
shares upon each annual meeting of shareholders of the Company. 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.
During the last fiscal year, the Company granted options under the
Directors' Plan as follows:12,688 shares at an exercise price per share of
$24.25 on February 18, 1998, to the following non-employee directors:
SorrentoVentures ll, L.P., SorrentoVentures llB, L.P., Phillips-Smith Specialty
Retail Group lll, L.P., Stanley Foster, and Edgar Berner; 6,250 shares at an
exercise price of $20.00 on May 27, 1998, to the following non-employee
directors; Sorrento Ventures ll L.P., Sorrento Ventures, llB L.P., Phillips-
Smith Specialty Retail Group, Stanley Foster and Edgar Berner; and 5,000 shares
at an exercise price of $14.00 on September 14, 1998 to Bruce Quinnell. The
fair market value of such Common Stock on the dates of the grants were equal to
the exercise price
7
<PAGE>
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). No options were
exercised under the Directors' Plan in fiscal 1998.
Compensation of Executive Officers
The following table shows for the fiscal years ended February 1, 1997,
January 31, 1998 and January 30, 1999, 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 $100,000 in
fiscal 1998 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
--------------------- ------------------
Securities
Name and Principal Salary Bonus Underlying All Other
Position Year ($) ($)(1) Options Compensation($)
- ----------------------------- -------- --------- --------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Orval D. Madden, 1998 $300,000 $150,000 42,000 $19,576(2)
President and Chief Executive 1997 $300,000 $150,000 100,000 $13,105(2)
Officer 1996 $200,000 $100,000 10,000 $ 8,673(2)
Elizabeth M. McLaughlin, 1998 $187,000 $ 60,000 20,000 $10,471(3)
Vice President, General 1997 $170,000 $ 60,000 50,000 $ 4,494(3)
Merchandise Manager 1996 $148,000 $ 40,000 10,000 $ 2,202(3)
Jay A. Johnson, 1998 $184,200 $ 60,000 20,000 $ 2,003(4)
Chief Financial Officer and 1997 $166,300 $ 60,000 50,000 $ 3,418(4)
Assistant Secretary 1996 $144,500 $ 55,000 2,500 --
Marc R. Bertone, 1998 $175,400 $ 64,429 12,000 $10,872(5)
Vice President, 1997 $162,000 $ 55,000 25,000 $ 7,171(5)
Real Estate and Construction 1996 $145,250 $ 40,000 5,000 --
</TABLE>
____________________
(1) 1998 amounts reflect bonuses earned in fiscal 1998 and paid in fiscal 1999,
1997 amounts reflect bonuses earned in fiscal 1997 and paid in fiscal 1998,
and 1996 amounts reflect bonuses earned in fiscal 1996 and paid in fiscal
1997.
(2) Of these amounts $12,480, $5,371 and $2,679 represent an automobile
allowance in fiscal 1998, fiscal 1997 and fiscal 1996, respectively; $5,241,
$5,240 and $5,993 represent long-term disability insurance payments in
fiscal 1998, fiscal 1997 and fiscal 1996, respectively; $1,855 and $2,493
represents life insurance premiums paid in fiscal 1998 and fiscal 1997.
(3) Of these amounts $1,305, $1,305 and $2,202 represent long-term disability
insurance payments in fiscal 1998, fiscal 1997 and in fiscal 1996,
respectively; $9,165 and $3,189 represent an automobile allowance in fiscal
1998 and fiscal 1997.
(4) Of these amounts $820 represents life insurance premiums paid in fiscal
1998; $1,183 and $3,418 represent long-term disability insurance premiums
paid in fiscal 1998 and 1997, respectively.
(5) Of these amounts $9,351 and $1,981 represent an automobile allowance in
fiscal 1998 and fiscal 1997, respectively; $1,550 and $5,190 represent long-
tem disability insurance payments in fiscal 1998 and 1997, respectively.
Stock Option Grants And Exercises
The Company grants options to its executive officers under the 1996 Plan.
As of March 1, 1999, options to purchase a total of 848,751 shares were
outstanding under the 1996 Plan and options to purchase 98,461 shares remained
available for grant thereunder.
8
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options made during the
fiscal year ended January 30, 1999 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation
Underlying Granted to Exercise or Market Price for Option Term (3)
Options Employees Base Price on Date of Expiration -----------------------------
Name Granted(1) in Fiscal Year(2) ($/Sh) Grant Date 5% 10%
- ------------------------ ------------- ----------------- ------------ ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Orval D. Madden 42,000 16.1% $21.63 $21.63 05/27/08 $572,330 $1,444,451
Jay A. Johnson 20,000 7.7% $21.63 $21.63 05/27/08 $272,538 $ 687,834
Elizabeth M. McLaughlin 20,000 7.7% $21.63 $21.63 05/27/08 $272,538 $ 687,834
Marc R. Bertone 12,000 4.6% $21.63 $21.63 05/27/08 $163,523 $ 412,700
</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 261,400 shares granted to employees in fiscal
1998, 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.
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 1998 and the number and value of securities underlying
unexercised options held by the Named Executive Officers as of January 30, 1999:
<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 on Value Realized
Name Exercise on Exercise Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------------- -------------- ------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Orval D. Madden............. 20,309 $205,248 37,500 108,250 $ 0 $29,550
Jay A. Johnson.............. 6,000 $128,000 32,281 56,719 $127,297 $51,297
Elizabeth M. McLaughlin..... 26,000 $487,480 26,125 54,375 $ 65,990 $24,625
Marc R. Bertone............. 11,800 $264,251 12,500 29,500 $ 24,625 $14,775
</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 30, 1999.
Amounts reflected are based on the fair market value minus the exercise
price and do not indicate that the optionee sold such stock.
9
<PAGE>
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 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 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 1998, 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 1998 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.
10
<PAGE>
Long Term Incentives
The final portion of the executive officers' compensation during fiscal
1998 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 1998, Mr. Orval Madden, President and Chief Executive Officer
of the Company and member of the Board, received a base salary of $300,000, the
same as in fiscal 1997, and was eligible to earn a bonus under a specific plan
approved by the Committee . Among the factors considered by the Committee in
its consideration of Mr. Madden's performance were net income results, new store
openings, the Company's performance compared to a Peer Group performance and the
further strengthening of the Company's personnel and systems infrastructure.
Mr. Madden's incentive bonus award for fiscal 1998 earned under the plan
was based substantially on the financial performance of the Company for the
fiscal year 1998. 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 42,000 shares
of Common Stock on May 27, 1998 at the option price of $21.63 per share.
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.
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
Bruce A. Quinnell
Orval Madden
Compensation Committee Interlocks and Insider Participation
Messrs. Jaffe, Foster, Schuon, Quinnell 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, Schuon and
Quinnell, 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.
11
<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 30, 1999. 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
<TABLE>
<CAPTION>
----------------FISCAL YEAR ENDING---------------
COMPANY/INDEX/MARKET 9/24/96 12/31/96 6/30/97 12/31/97 6/30/98 1/30/99
<S> <C> <C> <C> <C> <C> <C>
Hot Topic Inc 100.00 75.60 86.12 87.08 90.91 49.28
NASDAQ CRSP Retail Trade Index 100.00 93.95 100.97 110.67 135.23 136.73
NASDAQ Market Index 100.00 104.71 117.67 128.44 154.42 206.31
</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. The Company has also entered into employment agreements
with certain of its executive officers. See "Employment Agreements."
12
<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
/s/ Jay A. Johnson
Jay A. Johnson
Assistant Secretary
April 28, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR FISCAL 1998 IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST
TO: ASSISTANT SECRETARY, HOT TOPIC, INC., 3410 POMONA BOULEVARD, POMONA,
CALIFORNIA 91768.
13
<PAGE>
HOT TOPIC, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD ON JUNE 1, 1999
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 Tuesday, June 1, 1999 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 PROPOSAL 2, 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 vote for all nominees
as marked to the listed below.
contrary below).
Nominees: Robert M. Jaffe, Orval D. Madden, Edgar F. Berner,
Stanley E. Foster, Andrew Schuon,
Corrado Federico, Bruce A. Quinnell
To withhold authority to vote for any nominee(s) write the name(s) of such
nominee(s) below:
------------------------------------------------------
------------------------------------------------------
(Continued and to be signed on other side)
<PAGE>
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending January 29, 2000.
[_] FOR [_] AGAINST [_] ABSTAIN
DATED , 1999
----------------------------
----------------------------
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.
