<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GADZOOKS, 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)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(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):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] 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.:
- - --------------------------------------------------------------------------------
(3) Filing Party:
- - --------------------------------------------------------------------------------
(4) Date Filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
[GADZOOKS LOGO]
Dallas, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JUNE 25, 1997
To the Shareholders of Gadzooks, Inc.
The 1997 Annual Meeting of Shareholders (the "Annual Meeting") of
Gadzooks, Inc., a Texas corporation (the "Company"), will be held on Wednesday,
June 25 at 2:00 p.m., local time, at the Company's headquarters, 4121
International Parkway, Carrollton, Texas 75007 for the following purposes:
1. To elect two directors to serve until the year 2000 Annual Meeting of
Shareholders;
2. To ratify the selection of Price Waterhouse as independent auditors
for the Company for the fiscal year ending January 31, 1998; and
3. To transact all other business that may properly come before such
meeting or any adjournment(s) thereof.
The close of business on Friday, May 9, 1997 has been fixed as the record
date for the determination of shareholders entitled to notice of, and to vote
at, the Annual Meeting or any adjournment(s) thereof. Only holders of record of
the Company's common stock (the "Common Stock") at the close of business on the
record date are entitled to notice of, and to vote at, the Annual Meeting. The
Company's stock transfer books will not be closed. A complete list of
shareholders entitled to vote at the Annual Meeting will be available for
examination by any Company shareholder at the Company's headquarters, 4121
International Parkway, Carrollton, Texas 75007, for purposes pertaining to the
Annual Meeting, during normal business hours for a period of 10 days prior to
the Annual Meeting, and at the time and place of the Annual Meeting.
You are cordially invited to attend the Annual Meeting. WHETHER OR NOT YOU
EXPECT TO ATTEND IN PERSON, YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED
PROXY CARD AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE REPRESENTED AND VOTED
AT THE ANNUAL MEETING. A self-addressed, postage prepaid envelope is enclosed
for your convenience. You may revoke your proxy by following the procedures set
forth in the accompanying Proxy Statement.
By order of the Board of Directors
GADZOOKS, INC.
/s/ MONTY R. STANDIFER
Monty R. Standifer
Secretary
May 13, 1997
<PAGE> 3
[GADZOOKS LOGO]
4121 International Parkway
Carrollton, Texas 75007
(972) 307-5555
---------------------
PROXY STATEMENT
---------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company for use at the Annual Meeting to be held on Wednesday, June 25,
1997, at 2:00 p.m., local time, at the Company's headquarters, 4121
International Parkway, Carrollton, Texas, (972) 307-5555, or at any
adjournment(s) thereof. The solicitation of proxies by the Board of Directors
of the Company (the "Board of Directors") will be conducted primarily by mail.
ChaseMellon Shareholder Services, L.L.C. has been retained to assist the
Company in the solicitation of proxies in connection with the Annual Meeting
for a fee of approximately $5,000, plus out-of-pocket expenses. In addition,
officers, directors and employees of the Company may solicit proxies personally
or by telephone, telegram or other forms of wire or facsimile communication.
These persons will receive no special compensation for any solicitation
activities. The Company will, upon request, reimburse brokers, custodians,
nominees and fiduciaries for reasonable expenses incurred by them in forwarding
proxy material to beneficial owners of the Common Stock. The costs of the
solicitation will be borne by the Company. This proxy statement and the form of
proxy were first mailed to shareholders of the Company on or about May 13,
1997.
The enclosed proxy, although executed and returned, may be revoked at any
time prior to the voting of the proxy (a) by the execution and submission of a
revised proxy bearing a later date, (b) by written notice of revocation to the
Secretary of the Company at the address set forth above, or (c) by voting in
person at the Annual Meeting. In the absence of such revocation, shares
represented by the proxies will be voted at the Annual Meeting.
At the close of business on May 9, 1997, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding 8,599,324 shares of Common Stock, each of which
is entitled to one vote. Common Stock is the only class of outstanding
securities of the Company entitled to notice of and to vote at the Annual
Meeting. All share amounts and prices stated in this Proxy Statement are
adjusted to give retroactive effect to the Company's 50% stock dividend paid on
May 30, 1996.
<PAGE> 4
A. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting. Alan W. Crites and
Gerald R. Szczepanski have been nominated to serve as directors and, if
elected, will serve until the Company's Annual Meeting of Shareholders in the
year 2000 and until their respective successors shall have been duly elected
and qualified or until their earlier death, disqualification or removal from
office. Each of these nominees for director currently serves as a director of
the Company. Under the Bylaws of the Company and consistent with Texas law,
directors shall be elected by plurality vote at each annual meeting of
shareholders at which a quorum is present and, accordingly, abstentions and
"broker non-votes" will have no effect on the election of directors except in
determining if a quorum is present. A broker non-vote occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item. Shareholders may not cumulate
their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy, if signed and returned, will be voted for the election of the
below-listed nominees. Although the Board of Directors does not contemplate
that any of the nominees will be unable to serve, if such a situation arises
prior to the Annual Meeting, the persons named in the enclosed proxy will vote
for the election of such other person(s) as may be nominated by the Board of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MESSRS. CRITES AND
SZCZEPANSKI TO THE BOARD OF DIRECTORS.
The following table sets forth certain information regarding the director
nominees and the other directors of the Company:
<TABLE>
<CAPTION>
SERVED AS DIRECTOR'S
NAME AGE POSITION DIRECTOR SINCE TERM ENDING
- - ---- --- -------- -------------- -----------
<S> <C> <C> <C> <C>
Gerald R. Szczepanski................... 48 Chairman of the Board, 1983 1997
President, Chief
Executive Officer
and Director
Alan W. Crites.......................... 44 Director 1992 1997
G. Michael Machens...................... 46 Director 1992 1999
Robert E.M. Nourse...................... 58 Director 1993 1998
Lawrence H. Titus, Jr................... 46 Director 1983 1999
</TABLE>
GERALD R. SZCZEPANSKI, a co-founder of the Company, has served as Chairman
of the Board and Chief Executive Officer of the Company since July 1994 and
President of the Company since July 1995. From January 1983 until July 1994,
Mr. Szczepanski was President of the Company. Mr. Szczepanski has been a
Director of the Company since January 1983. Prior to founding the Company, from
1977 to 1983 Mr. Szczepanski was a Vice President of T-Shirts Plus, a chain of
300 franchised retail t-shirt stores located throughout the United States. Mr.
Szczepanski has a total of 20 years experience in the retail business.
2
<PAGE> 5
ALAN W. CRITES has served as a Director of the Company since January 1992.
Mr. Crites is currently a General Partner of InterWest Partners, a venture
capital firm, where he focuses on the health care and nontechnology sectors.
Prior to joining InterWest in November 1989, Mr. Crites was employed with
General Electric Company for 15 years, during four of which Mr. Crites served
as general manager of the GE Computer Service business.
G. MICHAEL MACHENS has served as a Director of the Company since January
1992. Mr. Machens is currently a General Partner of Phillips-Smith Specialty
Retail Group, a specialty retail venture capital firm. Prior to joining
Phillips-Smith in 1989, Mr. Machens served as Chief Financial Officer of
Blockbuster Entertainment, Chief Financial Officer of Compco Computer Centers,
and Controller of Pearle Health Services, Inc. Mr. Machens serves as a director
of several privately held retail and restaurant companies.
ROBERT E.M. NOURSE has served as a Director of the Company since October
1993. Mr. Nourse currently manages personal investments. From 1980 to 1996, Mr.
Nourse served as President and Chief Executive Officer of The Bombay Company,
Inc., a specialty retailer selling home furnishings and decorative accessories
in over 400 stores in the United States and Canada. Mr. Nourse served as a
director of The Bombay Company, Inc. from 1990 to 1996.
LAWRENCE H. TITUS, JR., a co-founder of the Company, has served as a
Director of the Company since January 1983. Mr. Titus currently manages
personal investments. Mr. Titus served as President and Secretary of the
Company from July 1994 until July 1995, when he resigned to pursue other
interests. From January 1983 until July 1994, Mr. Titus was Vice President and
Secretary of the Company. Prior to founding the Company, from 1976 to 1983 Mr.
Titus was a Vice President of T-Shirts Plus, a chain of 300 franchised retail
t-shirt stores located throughout the United States.
The directors elected at the Annual Meeting will hold office until the
year 2000 annual meeting of shareholders of the Company and until their
successors are duly elected and qualified, or until their earlier death,
resignation, disqualification or removal from office. The executive officer
named above was elected to serve in such capacity until his successor is duly
elected and qualified or until his earlier death, disqualification, retirement,
resignation or removal from office. There is no family relationship between any
of the directors and executive officers of the Company.
The following table sets forth information regarding the executive
officers of the Company who are not directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Monty R. Standifer............... 57 Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
Loretta S. Beck.................. 47 Senior Vice President -- General
Merchandising Manager
William S. Kotch III............. 46 Vice President -- Real Estate
Georgia A. Taylor................ 42 Vice President -- Store Operations
</TABLE>
3
<PAGE> 6
MONTY R. STANDIFER has served as Senior Vice President, Chief Financial
Officer, Treasurer and Secretary since July 1995. From June 1992 until July
1995, Mr. Standifer served as Vice President -- Treasurer and Chief Financial
Officer of the Company. From July 1991 to June 1992, Mr. Standifer served as
Senior Vice President and Chief Financial Officer of AmeriServ Food Company, a
food service systems distributor. Prior to that time, Mr. Standifer was a
co-founder of BizMart, Inc., a chain of office products superstores, serving as
Vice President -- Finance, Treasurer and Secretary from its founding in October
1987 until July 1991, shortly after the company was sold. Mr. Standifer was
previously employed by Tandy Corporation for 14 years in various financial
management positions. Mr. Standifer has a total of 25 years experience in the
retail business.
LORETTA S. BECK has served as Senior Vice President -- General
Merchandising Manager of the Company since July 1995. From December 1994 until
July 1995, Ms. Beck served as Vice President -- General Merchandising Manager
of the Company. Prior to joining the Company, Ms. Beck served as Vice
President, General Merchandise Manager of Feminine Apparel at Montgomery Ward
from December 1992 to March 1994, Senior Vice President, General Merchandise
Manager at Carson Pirie Scott from February 1991 to December 1992, and Senior
Vice President, General Merchandise Manager of Feminine Apparel at May Company
from July 1988 to February 1991. Carson Pirie Scott commenced Chapter 11
reorganization proceedings in 1991. Ms. Beck has 21 years of retail experience
in department stores and specialty stores, including 11 years with R.H. Macy
where she held various management positions in purchasing and operations.
WILLIAM S. KOTCH III has served as Vice President -- Real Estate since
August 1995. From October 1986 until August 1995, Mr. Kotch served as National
Director of Real Estate for County Seat Stores, Inc., a chain of over 700
specialty retail stores. Mr. Kotch was previously employed by the Zale
Corporation for 13 years in various operational positions including Manager of
Corporate Real Estate from 1983 to 1985. Mr. Kotch has 13 years of retail
leasing experience.
GEORGIA A. TAYLOR has served as Vice President -- Store Operations since
February 1996. From October 1994 to February 1996, Ms. Taylor served as
Director of Store Operations of the Company. From April 1989 to October 1994,
Ms. Taylor was employed by The Cato Corporation, a chain of over 650 women's
value-priced apparel stores. Ms. Taylor most recently served as Regional Vice
President at Cato where she managed a region of approximately 100 stores. Ms.
Taylor has over 21 years of experience in the retailing industry, including
previous employment with County Seat Stores, Inc. and Montgomery Ward.
The executive officers named above were elected to serve in such
capacities until their respective successors have been duly elected and have
been qualified or until their earlier death, disqualification, retirement,
resignation or removal from office.
4
<PAGE> 7
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held six meetings during fiscal year 1996. Each of
the directors attended at least 80% of the aggregate total meetings of the
Board of Directors and any committee on which such director served.
The Board of Directors currently has three standing committees, the Audit
Committee, the Compensation Committee and the Stock Option Committee. The Audit
Committee, which currently consists of Messrs. Crites and Machens, meets
periodically with representatives of the Company's independent auditors to
review the general scope of the annual audit, including consideration of the
Company's accounting practices and procedures and system of internal accounting
controls, and reports to the Board of Directors with respect thereto. The Audit
Committee met two times during fiscal 1996 and each member attended each of
such meetings. The Compensation Committee, which currently consists of Messrs.
Crites, Machens and Nourse, meets periodically to review and make
recommendations with respect to the annual compensation of the Company's
executive officers and management group. The Compensation Committee met one
time during fiscal 1996 and each member attended the meeting. The Stock Option
Committee, which currently consists of Messrs. Crites, Machens and Nourse,
meets periodically to administer the Company's stock option plans. The Stock
Option Committee held one meeting during fiscal 1996 and each member attended
the meeting. The Stock Option Committee also acted by unanimous consent in lieu
of meeting two times during fiscal 1996.
COMPENSATION OF DIRECTORS
Each director of the Company who is not an officer or employee of the
Company receives a $1,500 fee for each meeting of the Board of Directors
attended by such director. In addition, directors of the Company are reimbursed
for their reasonable out-of-pocket expenses in connection with their travel to
and attendance at meetings of the Board of Directors or committees thereof. The
Company has adopted a stock option plan for non-employee directors of the
Company (the "Director Plan"), pursuant to which such directors will
automatically receive on February 1 of each year, for services in the prior 12
months, an option to purchase that number of shares of Common Stock (rounded to
the nearest whole number) equal to $15,000 divided by the fair market value per
share of the Common Stock on that date. Each new director who is elected or
appointed during any year shall receive on such date of election or appointment
an option to purchase that number of shares of Common Stock (rounded to the
nearest whole number) equal to $25,000 divided by the fair market value per
share of the Common Stock on the date of grant. The maximum number of shares of
Common Stock available for grant under the Director Plan is 30,000.
In October 1993 and January 1995, the Company granted Mr. Nourse options
to purchase 9,523 shares of Common Stock at $0.32 per share vesting over a
four-year period and exercisable through October 2003 and 4,761 shares of
Common Stock at $1.05 per share vesting over a four-year period and exercisable
through January 2005, respectively, under the Company's 1992 Incentive and
Nonstatutory Stock Option Plan. Such options have a weighted average exercise
price of $0.56 per share. On February 1, 1997, under the Director Plan, Mr.
Crites, Mr. Machens, Mr. Nourse and Mr. Titus were each granted options to
purchase 533
5
<PAGE> 8
shares of Common Stock, all at $28.13 per share, vesting over a four-year
period and exercisable through February 2007. As of February 1, 1997, options
to purchase 3,007 shares were outstanding under the Director Plan with a
weighted average exercise price of $17.50 per share. All of the options granted
to date under the Director Plan vest over a four-year period.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to the
Chief Executive Officer and the four next most highly compensated executive
officers (the "Named Executive Officers") for services rendered in all
capacities during fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION STOCK
-------------------------- OPTIONS ALL OTHER
YEAR SALARY BONUS(1) SHARES COMPENSATION(2)
---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Gerald R. Szczepanski 1996 $240,000 $514,270 30,000 $ 9,000
Chairman of the Board, 1995 200,000 326,215 47,619 9,411
President and Chief Executive 1994 165,000 89,932 227,209 2,938
Officer
Monty R. Standifer 1996 175,000 191,356 15,000 7,200
Senior Vice President, Chief 1995 160,000 196,335 17,142 7,200
Financial Officer, Treasurer 1994 148,500 66,550 -- --
and Secretary
Loretta S. Beck (3) 1996 170,000 251,155 15,000 6,000
Senior Vice President -- 1995 150,000 196,335 -- 39,400
General Merchandising Manager 1994 14,423 -- 61,903 --
William S. Kotch III (4) 1996 120,000 119,597 4,500 6,000
Vice President -- 1995 48,654 30,000 23,809 660
Real Estate
Georgia A. Taylor (5) 1996 125,000 119,597 7,500 6,000
Vice President -- 1995 110,000 86,335 -- 6,000
Store Operations 1994 32,307 10,000 23,809 2,000
</TABLE>
- - --------------
(1) The Company's executive officers are entitled to receive bonuses depending
on the Company's achievement of certain levels of operating income and
other performance criteria. Amounts represent bonuses accrued for each
year's performance, but paid in the subsequent year. See "Bonus Plan."
(2) Amounts represent automobile allowances, except, in the case of Ms. Beck,
the amount for 1995 includes an automobile allowance of $6,000 and $33,400
for moving expenses.
(3) Ms. Beck joined the Company in December 1994.
(4) Mr. Kotch joined the Company in August 1995.
(5) Ms. Taylor joined the Company in October 1994.
7
<PAGE> 10
The following table provides information concerning stock options granted
to the Named Executive Officers in fiscal 1996. In addition, in accordance with
the regulations of the Commission, hypothetical gains or "option spreads" that
would exist for the respective options are shown. These gains are based on
assumed rates of annual stock price appreciation of 5% and 10% from the date
the options were granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
%OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SHARES TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1996 ($/SH) DATE 5%($) 10%($)
- - ---- ----------- --------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski............... 30,000 20.2% $18.50 March 2006 $ 349,036 $884,527
Chairman of the Board,
President and
Chief Executive Officer
Monty R. Standifer.................. 15,000 10.1 18.50 March 2006 174,518 442,264
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Loretta S. Beck..................... 15,000 10.1 18.50 March 2006 174,518 442,264
Senior Vice President-
General Merchandising Manager
William S. Kotch III................ 4,500 3.0 18.50 March 2006 52,355 132,679
Vice President-
Real Estate
Georgia A. Taylor................... 7,500 5.0 18.50 March 2006 87,259 221,132
Vice President-
Store Operations
</TABLE>
- - ------------
(1) The options granted are subject to a five-year vesting schedule with 20%
becoming first exercisable on March 1, 1997. An additional 20% becomes
exercisable on each of the first, second, third and fourth anniversaries
of such date.
(2) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Commission and do not reflect the Company's estimates or
projections of future Common Stock prices. There can be no assurance that
the amounts reflected in this table will be achieved. These numbers
exclude the provisions of the Company's stock option plans governing
termination of the option following employment termination,
nontransferability or vesting.
8
<PAGE> 11
The following table sets forth, as of February 1, 1997, the number of
options and the value of unexercised options held by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
OPTION EXERCISES NUMBER OF
---------------------- SHARES UNDERLYING VALUE OF UNEXERCISED
NO. OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FEBRUARY 1, 1997 FEBRUARY 1, 1997(1)
ACQUIRED VALUE ---------------------------- --------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski........ -- -- 145,850 158,978 $3,618,285 $3,410,581
Chairman of the Board, President
and Chief Executive Officer
Monty R. Standifer........... 62,858 $1,610,071 27,140 20,714 748,149 299,185
Senior Vice President, Chief
Financial Officer, Treasurer
and Secretary
Loretta S. Beck.............. 12,379 409,325 12,382 52,141 341,771 1,169,542
Senior Vice President --
General Merchandising Manager
William S. Kotch III......... 4,761 129,023 -- 23,547 -- 469,035
Vice President --Real Estate
Georgia A. Taylor ........... 4,761 163,540 4,763 21,785 131,459 466,491
Vice President --
Director of Store Operations
</TABLE>
- - --------------
(1) For purposes of this table, the value of the unexercised options is the
amount by which the market value of the Common Stock as of January 31,
1997 underlying the in-the-money options exceeds the exercise price
thereof. This valuation methodology differs from the potential realizable
value of the options at assumed annual rates of Common Stock price
appreciation used to calculate the value of options granted to the Named
Executive Officers on page 7.
BONUS PLAN
The executive officers and certain other members of corporate management
are eligible to receive cash bonuses in addition to their base salaries. The
bonus plan for executive officers and corporate management is based upon the
Company's pre-tax profit for the fiscal year. Total bonuses paid to executive
officers and corporate management for fiscal 1996 were approximately
$1,499,221. The Company's field supervision (regional and district managers)
and store management personnel are eligible to receive bonuses based on store
sales, payroll and other expense and inventory control factors. Total bonuses
paid to field supervision and store management personnel for fiscal 1996 were
approximately $1,002,882. The executive officers' and corporate management's
bonus plans are reviewed and approved by the Compensation Committee of the
Company's Board of Directors. The store management bonus plans are reviewed and
approved by the executive officers.
EMPLOYEE STOCK OPTION PLANS
In February 1992, the Board of Directors of the Company adopted the 1992
Incentive and Nonstatutory Stock Option Plan (the "Incentive Plan"). The
Incentive Plan is currently administered by the Stock Option Committee (the
"Committee"). Subject to the express provisions of the Incentive Plan, the
Committee may, from time to time, determine the persons
9
<PAGE> 12
that will be granted options under the Incentive Plan, the number of shares of
Common Stock subject to each option and the exercise price, and the time or
times when such options shall be granted and may be exercised. The Incentive
Plan provides that options granted under the Incentive Plan may be either
"incentive stock options" ("ISOs") as defined by the Internal Revenue Code of
1986, as amended (the "Code"), or non-ISOs. The maximum number of shares of
Common Stock available for grant under the Incentive Plan is 900,000. As of
February 1, 1997, options to purchase 425,073 shares were outstanding under the
Incentive Plan with a weighted average exercise price of $7.80 per share. All
of the options granted to date under the Incentive Plan vest either immediately
or over a three-, four- or five-year period.
In September 1994, the Board of Directors of the Company adopted the 1994
Incentive and Nonstatutory Stock Option Plan for Key Employees (the "Key
Employee Plan"). The Key Employee Plan is also currently administered by the
Committee. Subject to the express provisions of the Key Employee Plan, the
Committee may, from time to time, determine the persons that will be granted
options under the Key Employee Plan, the number of shares of Common Stock
subject to each option and the exercise price, and the time or times when such
options shall be granted and may be exercised. The Key Employee Plan provides
that options granted under the Key Employee Plan may be either ISOs or
non-ISOs. The maximum number of shares of Common Stock available for grant
under the Key Employee Plan is 272,651 shares. As of February 1, 1997, options
to purchase 227,209 shares were outstanding under the Key Employee Plan, all of
which have an exercise price of $3.15 per share, and options for 45,442 shares
have been exercised under the Key Employee Plan, all of which had an exercise
price of $3.15 per share. All of the options granted under the Key Employee
Plan vest over a five-year period.
401(k) PLAN
Effective January 1, 1995, the Company adopted the Gadzooks, Inc.
Employees' Savings Plan (the "401(k) Plan"). All employees who have been
employed by the Company for at least one year of service (provided that such
service represents a minimum of 1,000 hours worked during the year) and are at
least 21 years of age are eligible to participate. Employees may contribute to
the 401(k) Plan up to 15% of their current compensation, subject to a
statutorily prescribed annual limit. The 401(k) Plan provides that the Company
will make regular matching contributions to the 401(k) Plan each year in the
amount of 50% of the participant's contribution, up to 4% of the participant's
compensation, for the year. The 401(k) Plan also provides that the Company may
determine to make a discretionary profit-sharing contribution to the plan each
year based upon the Company's profitability for that year. Employee
contributions and the Company's matching contributions are paid to a corporate
trustee and invested in various funds at the discretion of the participant. The
Company's contribution, if any, vests over five years or earlier upon
attainment of retirement at age 65, retirement for disability, death or
termination of the 401(k) Plan. As of the date of this Proxy Statement, the
Company has not made any profit-sharing contributions to the 401(k) Plan.
Distributions may be made from a participant's account in the form of a lump
sum upon termination of employment, retirement, disability, death or in the
event of financial hardship. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code, as amended (the "Code"), so that
contributions by employees or by the
10
<PAGE> 13
Company to the 401(k) Plan, and income earned on such contributions, are not
taxable to employees until withdrawn from the 401(k) Plan.
EMPLOYMENT AGREEMENTS
The Company has an agreement with Mr. Szczepanski pursuant to which the
Company will continue to pay his base salary and health insurance premiums for
a period of twelve months in the event of his termination without cause. He
will also receive the cash bonus he would have received had the Company
achieved the budgeted financial performance for the fiscal year in which such
termination occurs, irrespective of whether the Company actually meets such
financial performance goals for such fiscal year. In addition, Mr. Szczepanski
has agreed not to participate, while an employee of the Company and for a
period of three years thereafter, in a business or enterprise that competes
with the Company.
The Company has an agreement with each of the remaining Named Executive
Officers pursuant to which the Company will continue to pay to each such
officer such officer's respective base salary and health insurance premiums for
a period of six months in the event of such officer's termination without
cause. In addition, each of the remaining Named Executive Officers has agreed
not to participate, while an employee of the Company and for a period of one
year thereafter, in a business or enterprise that competes with the Company.
11
<PAGE> 14
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE SHAREHOLDER
RETURN PERFORMANCE PRESENTATION THAT APPEARS IMMEDIATELY AFTER SUCH REPORT
SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT") OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") established compensation
policies and made the compensation decisions described herein for 1996. A
separate committee of the Board of Directors, the Stock Option Committee, has
responsibility for administering the Company's 1992 Incentive and Nonstatutory
Stock Option Plan and 1994 Incentive and Nonstatutory Stock Option Plan for Key
Employees, described herein at Appendices A and B, respectively, including the
full and final authority regarding the selection of award recipients and the
size and terms of option grants. The Committee's compensation policies were
applied to each of the Named Executive Officers, including the Chief Executive
Officer, in the same manner.
The Committee believes that in order for the Company to succeed it must be
able to attract and retain qualified executives. The objectives of the
Committee in determining the type and amount of executive officer compensation
are (i) to provide a compensation package consisting of a base salary, bonus,
and long term incentives in the form of stock options that is in the aggregate
competitive with the median range for retail companies of similar stage and
growth and (ii) to allow the Company to attract and retain talented executive
officers and to align their interests with those of the shareholders.
In 1993, the U.S. Congress enacted Section 162(m) of the Code and the U.S.
Treasury Department promulgated regulations thereunder that prevent publicly
traded companies from receiving tax deductions on certain compensation paid to
certain executive officers in excess of $1 million. 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. As the
Company rapidly grows, executive officer compensation will increase. Therefore,
the Committee intends to review its executive pay plans over time in light of
these regulations.
BASE SALARY
In establishing base salaries for fiscal 1996, the Committee gathered
compensation information on a group of similar companies, primarily mall-based
apparel retailers. While this analysis did not constitute a formal comparison
of executive salaries paid by other companies, the Committee believes that the
information, when taken together with the experience of Committee members
within the retail industry, provided the basis for reasonably informed
judgment. (See "Election of Directors" for a description of the retail
experience of each Committee member.)
12
<PAGE> 15
Overall, it was the Committee's intent that the salaries of the Company's
officers be competitive with those of executives with like responsibilities in
companies of similar size and stage of growth in the retail industry. The Chief
Executive Officer's base salary was determined in this manner to be $240,000,
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.
The Committee annually establishes targeted profitability levels for the
ensuing fiscal year in conjunction with the Company's annual financial plan.
The Incentive Plan provides for no executive bonuses below a specified level of
overall profitability. Upon the achievement of various increasing levels of
profitability above the minimum target level, the Incentive Plan provides for
greater percentages of such higher levels of profitability to be accrued in the
Incentive Plan. The purpose of the Incentive Plan is to reward and reinforce
executive management's commitment to achieve levels of annual profitability and
return consistent with increasing shareholder value.
The Committee annually determines in advance each executive's
participation level in the Incentive Plan. The Committee takes into account
various qualitative and quantitative factors which reflect the executive's
position, longevity in office, level of responsibility, and ability to impact
Gadzooks' profitability and financial success.
Specifically, for fiscal 1996 (as compared to fiscal 1995), the Company
increased sales by 51.8% by means of a comparable store sales increase of 6.1%
and a 45.2% increase in the year end number of stores. Net income increased by
96.1% and earnings per share increased by 45.0%, both of which were
significantly in excess of the Company's financial plan. As a result, Incentive
Plan payments to executive officers for fiscal 1996 aggregated $1,195,975.
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.
13
<PAGE> 16
LONG TERM INCENTIVES
The final portion of the executive officers' compensation during 1996
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. As noted, all the Named
Executive Officers were each granted a certain number of options during 1996.
Compensation Committee
Alan W. Crites
G. Michael Machens
Robert E.M. Nourse
14
<PAGE> 17
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the percentage change in the
cumulative total return on the Common Stock with the cumulative total return of
the CRSP Total Return Index for the Nasdaq National Market (U.S. Companies)
("Nasdaq Market Index") and the CRSP Total Return Industry Index for Nasdaq
Retail Trade Stocks ("Retail Index") for the period commencing on October 5,
1995(1) and ending on February 1, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
OCTOBER 5, 1995 THROUGH FEBRUARY 1, 1997(2)
[CHART]
- - --------
(1) For purposes of this presentation, the Company has assumed that its
initial offering price per share of $9.33 (as adjusted) would have been
the closing sales price on October 5, 1995, the day prior to the
commencement of trading. Trading in the Company's Common Stock commenced
on October 6, 1995 and the Company's 1996 fiscal year ended on February 1,
1997.
(2) Assumes that $100.00 was invested on October 5, 1995 in the Company's
Common Stock at the Company's initial offering price of $9.33 per share
and at the closing sales price for each index and the Peer Group on that
date and that all dividends were reinvested. No cash dividends have been
declared on the Company's Common Stock. Shareholder returns over the
indicated period should not be considered indicative of future shareholder
returns.
15
<PAGE> 18
CERTAIN TRANSACTIONS
The following directors and executive officers of the Company have certain
registration rights with regard to shares of Common Stock held by them: Gerald
R. Szczepanski, Lawrence H. Titus, Jr. and Robert E.M. Nourse.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's Directors and
Executive Officers, and persons who own more than 10% of the Common Stock, 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 10% stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge and based solely on review of the copies of such reports
furnished to the Company during the period commencing January 28, 1996 and
ending February 1, 1997, its Officers, Directors and greater than 10%
beneficial owners had complied with all applicable Section 16(a) filing
requirements.
16
<PAGE> 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS
AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of April 17, 1997 with respect to (i) each
person known by the Company to own beneficially more than five percent of the
Common Stock; (ii) each of the Company's directors and Named Executive
Officers; and (iii) all directors and executive officers as a group. Pursuant
to the rules of the Commission, in calculating percentage ownership, each
person is deemed to beneficially own his own shares subject to options
exercisable within 60 days after April 17, 1997, but options owned by others
(even if exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
Beneficial Ownership
-------------------------------
Shares Percentage
------ ----------
<S> <C> <C>
Gerald R. Szczepanski(1)............................................ 163,702 1.9%
Monty R. Standifer(2)............................................... 30,140 *
Loretta S. Beck(3).................................................. 29,274 *
William S. Kotch III................................................ -- *
Georgia A. Taylor(4)................................................ 5,513 *
Alan W. Crites(5)................................................... 3,981 *
G. Michael Machens(6)............................................... 4,180 *
Robert E.M. Nourse(7)............................................... 11,901 *
Lawrence H. Titus, Jr.(8)........................................... 139,105 1.6%
FMR Corp.(9)........................................................ 886,418 10.3%
82 Devonshire Street
Boston, Massachusetts 02109
Pilgrim Baxter & Associates, Ltd.(10)............................... 854,100 9.9%
11225 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087
Putnam Investments, Inc.(11)........................................ 922,007 10.7%
One Post Office Square
Boston, Massachusetts 02109
Sirach Capital Management, Inc.(12)................................. 500,250 5.8%
3323 One Union Square
Seattle, Washington 98101
All directors and executive officers
as a group (9 persons)(13).................................... 387,796 4.5%
</TABLE>
- - -------------
* Less than 1%
(1) Includes 151,850 shares of Common Stock subject to options exercisable
within 60 days of April 17, 1997.
17
<PAGE> 20
(2) Includes 30,140 shares of Common Stock subject to options exercisable
within 60 days of April 17, 1997.
(3) Includes 15,383 shares of Common Stock subject to options exercisable
within 60 days of April 17, 1997.
(4) Includes 5,513 shares of Common Stock Subject to option exercisable within
60 days of April 17, 1997.
(5) Beneficial ownership includes 450 shares of Common Stock subject to
options exercisable within 60 days of April 17, 1997.
(6) Beneficial ownership includes 450 shares of Common Stock subject to
options exercisable within 60 days of April 17, 1997.
(7) Includes 2,831 shares of Common Stock subject to options exercisable
within 60 days of April 17, 1997.
(8) Includes 283 shares of Common Stock subject to options exercisable within
60 days of April 17, 1997.
(9) Based on a report on Schedule 13G filed with the SEC, dated February 14,
1997. Pursuant to the instructions in Item 7 of Schedule 13G, Fidelity
Management & Research Company ("Fidelity"), 82 Devonshire Street, Boston,
Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 800,568 shares or 9.3% of the
common stock outstanding of the Company as a result of acting as
investment adviser to various investment companies registered under
Section 8 of the Investment Company Act of 1940 (the "Funds"). Edward C.
Johnson 3d, FMR Corp., through its control of Fidelity, and the Funds each
has sole power to dispose of the 800,568 shares owned by the Funds.
Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp., has the
sole power to vote or direct the voting of the shares owned directly by
the Funds, which power resides with the Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Funds' Boards of Trustees. Fidelity Management Trust
Company, 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned
subsidiary of FMR Corp. and a bank as defined in Section 3(a)(6) of the
Exchange Act, is the beneficial owner of 85,850 shares of the common stock
outstanding of the Company as a result of its serving as investment
manager of the institutional account(s). Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, has sole
voting and dispositive power over 85,805 shares of common stock owned by
the institutional account(s) as reported above.
(10) Based on a report on Schedule 13G filed with the SEC, dated February 14,
1997.
(11) Based on a report on Schedule 13G filed with the SEC, dated March 7, 1997.
Pursuant to the instructions in Item 7 of Schedule 13G, Putnam
Investments, Inc. wholly owns two registered investment advisers: Putnam
Investment Management, Inc., which is the investment adviser to the Putnam
family of mutual funds, and The Putnam Advisory Company, Inc.("PAC"),
which is the investment adviser to Putnam's institutional clients. Both
subsidiaries have dispository power over the shares as investment
managers, but each of the mutual funds' trustees have voting power over
the shares held by each fund, and PAC has shared voting power over the
shares held by the institutional clients.
(12) Based on a report on Schedule 13G filed with the SEC, dated January 29,
1997.
18
<PAGE> 21
(13) Includes 206,900 shares of Common Stock subject to stock options
exercisable within 60 days of April 17, 1997.
B. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Price Waterhouse, which
has served as independent auditors of the Company since 1992, as independent
auditors of the Company for the fiscal year ending January 31, 1998, and
recommends ratification by the shareholders of such appointment. Such
ratification requires the affirmative vote of the holders of a majority of the
Common Stock entitled to vote on this matter and represented in person or by
proxy at the Annual Meeting. Accordingly, under the Bylaws of the Company and
in accordance with Texas law, an abstention would have the same legal effect as
a vote against this proposal, but a broker non-vote would not be counted for
purposes of determining whether a majority had been achieved. The persons named
in the accompanying proxy intend to vote for ratification of such appointment
unless instructed otherwise on the proxy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of Price Waterhouse as the Company's independent
auditors without the approval of the shareholders of the Company whenever the
Board of Directors deems such termination necessary or appropriate. A
representative of Price Waterhouse is expected to attend the Annual Meeting and
will have the opportunity to make a statement, if such representative desires
to do so, and will be available to respond to appropriate questions.
ANNUAL REPORT
The 1996 Annual Report of the Company, including financial statements,
accompanies this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit a proposal for inclusion in the proxy
material for presentation at the Company's 1998 Annual Meeting of Shareholders
must forward such proposal to the Secretary of the Company at the address
indicated on the second page of this proxy statement, so that the Secretary
receives it no later than January 13, 1998.
19
<PAGE> 22
FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
FEBRUARY 1, 1997, AS FILED WITH THE SEC, EXCLUDING EXHIBITS, ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO GADZOOKS, INC., 4121 INTERNATIONAL
PARKWAY, CARROLLTON, TEXAS 75007, ATTENTION: MONTY R. STANDIFER, SECRETARY.
COPIES OF EXHIBITS ARE AVAILABLE UPON PAYMENT OF A $25.00 FEE TO COVER THE
COSTS OF REPRODUCTION.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) thereof, it is
intended that the enclosed proxy will be voted in accordance with the judgment
of the persons voting the proxy.
By Order of the Board of Directors,
/s/ MONTY R. STANDIFER
Monty R. Standifer
Secretary
May 13, 1997
20
<PAGE> 23
PROXY
GADZOOKS, INC.
4121 INTERNATIONAL PARKWAY
CARROLLTON, TEXAS 75007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gerald R. Szczepanski, Monty R.
Standifer and Eliot D. Raffkind as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote, as designated
on the reverse side, all the shares of Common Stock of Gadzooks, Inc. held on
record by the undersigned on May 9, 1997, at the annual meeting of stockholders
to be held on June 25, 1997 or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" Proposals 1 and 2.
(CONTINUED AND TO BE DATED AND SIGNED ON THE REVERSE.)
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 24
A VOTE "FOR" PROPOSALS 1 AND 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
[X] Please mark your votes as indicated in this example
Item 1. Election of directors
FOR all nominees WITHHOLD *EXCEPTIONS
listed to the right AUTHORITY
to vote for all nominees
listed to the right
[ ] [ ] [ ]
Item 2. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS
INDEPENDENT AUDITORS OF THE CORPORATION.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Nominees: Alan W. Crites and Gerald R. Szczepanski
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
*Exceptions
--------------------------------------------------------------------
Item 3. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
CHANGE OF ADDRESS AND OR COMMENTS MARK HERE [ ]
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: ,1997
---------------------------------------
- - --------------------------------------------------
Signature
- - --------------------------------------------------
Signature
PLEASE MARK, SIGN,DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
