<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
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
GADZOOKS, INC.
(Name of Registrant As Specified in 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:
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):
$ (aggregate amount to be distributed to security holders)
-----------
4) Proposed maximum aggregate value of transaction:
$ (aggregate amount to be distributed to security holders)
-----------
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:
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<PAGE> 2
[GADZOOKS LOGO]
Dallas, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, JUNE 17, 1999
To the Shareholders of Gadzooks, Inc.
The 1999 Annual Meeting of Shareholders (the "Annual Meeting") of
Gadzooks, Inc., a Texas corporation (the "Company" or "Gadzooks"), will be held
on Thursday, June 17 at 9:30 a.m., local time, at Gadzooks' headquarters, 4121
International Parkway, Carrollton, Texas 75007 for the following purposes:
1. To elect two directors to serve until the 2002 Annual
Meeting of Shareholders;
2. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for Gadzooks for the fiscal year
ending January 29, 2000; and
3. To transact all other business that may properly come
before such meeting or any adjournment(s) thereof.
The close of business on Wednesday, May 5, 1999 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 Gadzooks' common stock at the close of business on the record date
are entitled to notice of, and to vote at, the Annual Meeting. Gadzooks' 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 Gadzooks' 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 7, 1999
<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 Gadzooks, Inc., a Texas corporation (the "Company" or "Gadzooks"), for use
at the 1999 Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Thursday, June 17, 1999 at 9:30 a.m., local time, at Gadzooks' headquarters,
4121 International Parkway, Carrollton, Texas 75007, (972) 307-5555, or at any
adjournment(s) thereof. The solicitation of proxies by the Board of Directors
of Gadzooks (the "Board of Directors") will be conducted primarily by mail.
ChaseMellon Shareholder Services, L.L.C. has been retained to assist Gadzooks
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 Gadzooks may solicit proxies personally or by
telephone, telegram, electronic mail or other forms of wire or facsimile
communication. These persons will receive no special compensation for any
solicitation activities. Gadzooks will, upon request, reimburse brokers,
custodians, nominees and fiduciaries for reasonable expenses incurred by them
in forwarding proxy material to beneficial owners of Gadzooks' common stock
(the "Common Stock"). The costs of the solicitation will be borne by Gadzooks.
This proxy statement and the form of proxy were first mailed to shareholders of
Gadzooks on or about May 7, 1999.
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 Gadzooks 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 proxies will be voted at the Annual Meeting.
At the close of business on May 5, 1999, the record date for the
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting, there were outstanding 8,896,736 shares of Common Stock, each of which
is entitled to one vote. Common Stock is the only class of outstanding
securities of Gadzooks 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 Gadzooks' 50% stock dividend paid on May
30, 1996.
<PAGE> 4
A. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting. G. Michael Machens
and Lawrence H. Titus, Jr. have been nominated to serve as directors and, if
elected, will serve until Gadzooks' Annual Meeting of Shareholders in 2002 and
until their respective successors have been duly elected and qualified or until
their earlier death, disqualification, retirement, resignation or removal from
office. Each of these nominees for director currently serves as a director of
Gadzooks and biographical information for each is set forth below. Under
Gadzooks' Bylaws 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. MACHENS AND
TITUS TO THE BOARD OF DIRECTORS.
The following table sets forth certain information regarding the director
nominees and the other directors of Gadzooks:
<TABLE>
<CAPTION>
SERVED AS DIRECTOR'S
NAME AGE POSITION DIRECTOR SINCE TERM ENDING
- ---------------------------------------- ----- --------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Gerald R. Szczepanski................... 50 Chairman of the Board, President, 1983 2000
Chief Executive Officer and
Director
Lawrence H. Titus, Jr................... 48 Director 1983 1999
G. Michael Machens...................... 48 Director 1992 1999
Robert E.M. Nourse...................... 60 Director 1993 2001
Ron G. Stegall.......................... 51 Director 1999 2000
</TABLE>
GERALD R. SZCZEPANSKI, a co-founder of Gadzooks, has served as Chairman of
the Board and Chief Executive Officer of Gadzooks since July 1994 and President
of Gadzooks since April 1999. Mr. Szczepanski also served as President of
Gadzooks from January 1983 until July 1994 and from July 1995 until August
1998. Mr. Szczepanski has been a Director of Gadzooks since January 1983. Prior
to founding Gadzooks, 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 22 years of
experience in the retail business.
LAWRENCE H. TITUS, JR., a co-founder of Gadzooks, has served as a Director
of Gadzooks since January 1983. Mr. Titus currently manages personal
investments. Mr. Titus served as President and Secretary of Gadzooks from July
1994 until July 1995, when he retired to pursue other interests. From January
1983 until July 1994, Mr. Titus was Vice President and Secretary of Gadzooks.
Prior to founding Gadzooks, from 1976 to 1983
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<PAGE> 5
Mr. Titus was a vice president of T-Shirts Plus, a chain of 300 franchised
retail t-shirt stores located throughout the United States.
G. MICHAEL MACHENS has served as a Director of Gadzooks 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 companies.
ROBERT E.M. NOURSE has served as a Director of Gadzooks since October
1993. Mr. Nourse is currently President of Arena Growth Ventures, a private
investment company. 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. Mr. Nourse has served as a director of Vanishing Point,
Inc., an operator of cosmetic hair removal salons, since 1998.
RON G. STEGALL has served as a Director of Gadzooks since February 1999.
Mr. Stegall is currently the chief executive officer of Arlington Equity
Partners, Inc., a venture capital firm specializing in retailing start-ups.
Prior to forming Arlington Equity Partners, Inc. in 1992, Mr. Stegall founded
BizMart, Inc., an office products superstore chain and was a retail executive
with Tandy Corporation's Radio Shack unit for many years. Mr. Stegall serves as
chairman of the board of directors of InterTAN, Inc., an international
electronics retailer and also serves as a director of Hastings Entertainment,
Inc., a superstore retailer and O'Sullivan Industries Holdings, Inc., a
furniture manufacturer.
The directors elected at the Annual Meeting will hold office until the
2002 annual meeting of shareholders of Gadzooks 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 Gadzooks.
The following table sets forth information regarding the executive
officers of Gadzooks who are not directors of Gadzooks:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- ------- -----------------------------------------------
<S> <C> <C>
Monty R. Standifer............................. 59 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
James F. Wimpress, Jr.......................... 45 Senior Vice President -- Store Operations
Paula Y. Masters............................... 36 Vice President -- General Merchandising Manager
Jeffrey P. Krainess............................ 37 Vice President -- Planning and Allocation
William S. Kotch III........................... 48 Vice President -- Real Estate
</TABLE>
MONTY R. STANDIFER has served as Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of Gadzooks since July 1995. From June 1992
until July 1995, Mr. Standifer served as Vice President -- Treasurer and Chief
Financial Officer of Gadzooks. 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
3
<PAGE> 6
management positions. Mr. Standifer is also a director of Pawn Mart, Inc., an
owner and operator of retail pawnshops. Mr. Standifer has a total of 27 years
of experience in the retail business.
JAMES F. WIMPRESS, JR. has served as Senior Vice President -- Store
Operations of Gadzooks since January 1998. From January 1996 to December 1997,
Mr. Wimpress served as Vice President of Operations of G&G/Rave. From March
1995 to December 1995, Mr. Wimpress served as Vice President of Retail of Carol
Little. Mr. Wimpress was Vice President of Stores, Real Estate and Construction
for Canadians from February 1994 to December 1994. Prior to that, Mr. Wimpress
was the Vice President of Stores for United Retail Group from October 1990 to
October 1993. Mr. Wimpress has over 24 years of experience in the retailing
industry.
PAULA Y. MASTERS has served as Vice President -- General Merchandising
Manager since January 1999. Prior to coming to Gadzooks, Ms. Masters held the
position of Vice President -- Divisional Merchandise Manager from January 1996
to December 1999 with Elder-Beerman where she was responsible for that
company's junior sportswear and dress business. From May 1986 to December 1995,
Ms. Masters served in a variety of capacities at Margo's, including Vice
President Divisional Merchandise Manager from May 1993 to January 1994 and
Senior Vice President - General Merchandise Manager from January 1994 to
December 1995. Ms. Masters has over 14 years of experience in the apparel
retailing business.
JEFFREY P. KRAINESS has served as Vice President -- Planning and Allocation
since January 1999. Mr. Krainess served as Vice President of Planning and
Distribution for Macy's East from February 1998 to November 1998. From January
1997 to February 1998, Mr. Krainess held the position of Vice President --
Planning and Allocation with United Retail Group (operator of approximately 550
Avenue/Sizes Unlimited stores). Mr. Krainess held various positions with the
Kaufmann's Division of May Department Stores from July 1983 until January 1997,
including Vice President of MIS, Planning and Allocation from September 1990 to
January 1997. Mr. Krainess has over 15 years of experience in the apparel
retailing business.
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 14 years of retail
leasing experience.
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.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings during fiscal 1998. Each
director attended all of the meetings of the Board of Directors and any
committee on which such director served.
The Board of Directors currently has two standing committees, the Audit
Committee and the Compensation Committee. The Audit Committee currently
consists of Messrs. Machens, Titus and Stegall. The Audit Committee meets
periodically with representatives of Gadzooks' independent auditors to review
the general scope of the annual audit, including consideration of Gadzooks'
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 1998. The Compensation Committee, which currently
consists of Messrs. Machens and Nourse, meets periodically to review and make
recommendations with respect to the annual compensation of Gadzooks' executive
officers and management group. The Compensation Committee met four times during
fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1998, Alan W. Crites, G. Michael Machens and Robert E. M. Nourse
served as members of the Compensation Committee of Gadzooks. None of these
individuals was an officer or employee of Gadzooks at any time during fiscal
1998.
4
<PAGE> 7
No current executive officer of Gadzooks serves as a member of the board
of directors or compensation committee of any other entity that has or has had
one or more executive officers serving as a member of Gadzooks' Board of
Directors or Compensation Committee.
COMPENSATION OF DIRECTORS
Each director of Gadzooks who is not an officer or employee of Gadzooks
receives a $12,000 annual retainer fee, a $1,500 fee for each meeting of the
Board of Directors attended by such director and a fee of $500 for each
committee meeting attended by such director. In addition, directors of Gadzooks
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.
Gadzooks has adopted a stock option plan for non-employee directors of
Gadzooks (the "Director Plan"). The Director Plan (i) grants to newly elected
or appointed non-employee directors options to purchase 5,000 shares of Common
Stock that vest over four years and (ii) grants annually to incumbent
non-employee directors options to purchase 2,000 shares of Common Stock that
vest over two years, which are awarded on the third day after Gadzooks' release
of annual earnings. As amended, 100,000 shares of Common Stock are available
for issuance under the Director Plan.
In October 1993 and January 1995 under Gadzooks' 1992 Incentive and
Nonstatutory Stock Option Plan, Gadzooks 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. Such options have a weighted average exercise price of $0.56 per
share. On February 4, 1999, under the Director Plan, Mr. Stegall was granted
options to purchase 5,000 shares of Common Stock at $6.56 per share, vesting
over a four-year period and exercisable through February 2009. On March 11,
1999, under the Director Plan, Mr. Machens, Mr. Nourse and Mr. Titus were each
granted options to purchase 2,000 shares of Common Stock and Mr. Stegall was
granted options to purchase 178 shares of Common Stock (which represents his
pro rata share of the annual grant of stock options), all at $7.81 per share,
vesting over a two-year period and exercisable through March 2009. As of March
11, 1999, options to purchase 39,317 shares of Common Stock were outstanding
under the Director Plan with a weighted average exercise price of $19.58 per
share. Under the Director Plan, 13,139 of the options granted to date vest over
a four-year period and 26,178 of the options granted to date vest over a
two-year period.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Gadzooks 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 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------------ STOCK OPTIONS ALL OTHER
NAME YEAR SALARY BONUS(1) SHARES COMPENSATION(2)
- ------------------------------- ----------- ---------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Gerald R. Szczepanski 1998 $ 440,000 $ -- 48,001 $ 12,000
Chairman of the Board and 1997 400,000 -- 28,000 9,746
Chief Executive Officer 1996 240,000 514,270 30,000 9,000
David G. Mangini(3) 1998 200,000 -- 125,000 6,000
President and Chief Operating 1997 -- -- -- --
Officer 1996 -- -- -- --
Monty R. Standifer 1998 230,000 -- 51,501 9,600
Senior Vice President, Chief 1997 210,000 -- 69,000 7,796
Financial Officer, Treasurer 1996 175,000 191,356 15,000 7,200
and Secretary
James F. Wimpress, Jr.(4) 1998 240,000 -- 27,501 21,510
Senior Vice President-- Store 1997 20,000 -- 35,000 800
Operations 1996 -- -- -- --
William S. Kotch III 1998 150,000 -- 9,400 8,400
Vice President-- Real Estate 1997 140,000 -- 7,000 7,180
1996 120,000 119,597 4,500 6,000
</TABLE>
- --------------------
(1) Gadzooks' executive officers are entitled to receive bonuses depending on
Gadzooks' 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 Mr.
Wimpress, the amount for 1998 includes an automobile allowance of $9,600
and $11,910 for moving expenses.
(3) Mr. Mangini joined Gadzooks as President and Chief Operating Officer in
August 1998. He left Gadzooks in April 1999. All stock option grants were
cancelled upon his departure.
(4) Mr. Wimpress joined Gadzooks in January 1998.
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<PAGE> 9
The following table provides information concerning stock options granted
to the Named Executive Officers in fiscal 1998. In addition, in accordance with
the regulations of the Securities and Exchange Commission (the "SEC"),
hypothetical gains or "option spreads" that would exist for the respective
options are shown. These gains are based on assumed rates of annual stock price
appreciation of 5% and 10% from the date the options were granted.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM(8)
OPTIONS FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED(1) 1998 ($/SH) DATE 5%($) 10%($)
- ---------------------------------- ------------ ----------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski............. 14,000(2) 1.84 $ 11.60 3/27/08 $ (13,767) $ 66,500
Chairman of the Board and Chief 14,001(3) 1.84 11.60 3/03/07 (21,319) 44,340
Executive Officer 20,000(4) 2.63 9.00 3/01/06 11,898 88,350
David G. Mangini.................. 125,000(5) 16.41 $ 11.56 8/03/08 908,753 2,302,958
President and Chief Operating
Officer
Monty R. Standifer................ 7,000(2) 0.92 $ 11.60 3/27/08 (6,884) 33,250
Senior Vice President, Chief 34,501(3) 4.53 11.60 3/03/07 (52,533) 109,263
Financial Officer, Treasurer and 10,000(4) 1.31 9.00 3/01/06 5,949 44,175
Secretary
James F. Wimpress, Jr............. 17,501(6) 2.30 $ 11.60 1/05/08 (19,235) 77,069
Senior Vice President-- Store 10,000(7) 1.31 10.25 9/08/08 64,462 163,359
Operations
William S. Kotch III.............. 3,500(2) 0.46 $ 11.60 3/27/08 (3,442) 16,625
Vice President-- Real Estate 3,500(3) 0.46 11.60 3/03/07 (5,329) 11,084
2,400(4) 0.32 9.00 3/01/06 1,428 10,602
</TABLE>
- -----------------------
(1) All options with an exercise price of either $9.00 or $11.60 are the
result of the repricing on December 15, 1998 of certain options previously
granted to the executive officers of Gadzooks. Under the option repricing,
officers of Gadzooks were eligible to exchange one and one half previously
granted options for every option repriced at an exercise price of $9.00
per share and two previously granted options for every option repriced at
an exercise price of $11.60 per share. See "Compensation Committee Report
on Repricing of Options."
(2) 20 percent of these options were vested as of March 27, 1999. The
remaining options become exercisable in 20 percent increments on March 27,
2000, March 27, 2001, March 27, 2002 and March 27, 2003, respectively.
(3) 40 percent of these options were vested as of March 3, 1999. The remaining
options become exercisable in 20 percent increments on March 3, 2000,
March 3, 2001 and March 3, 2002, respectively.
7
<PAGE> 10
(4) 60 percent of these options were vested as of March 1, 1999. The remaining
options become exercisable in 20 percent increments on March 1, 2000 and
March 1, 2001, respectively.
(5) Mr. Mangini left Gadzooks in April 1999 and all such stock options were
cancelled upon his departure from Gadzooks.
(6) 20 percent of these options were vested as of January 5, 1999. An
additional 20 percent becomes exercisable on January 5, 2000, January 5,
2001, January 5, 2002 and January 5, 2003, respectively.
(7) This option becomes exercisable in 20 percent increments on September 8,
1999, September 8, 2000, September 8, 2001, September 8, 2002 and
September 8, 2003.
(8) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the SEC and do not reflect Gadzooks' 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 Gadzooks' stock option plans governing termination of the
option following employment termination, nontransferability or vesting.
The following table sets forth information concerning all repricing of
options between the date of Gadzooks' initial public offering and January 30,
1999 that were held by any executive officer of Gadzooks at the time of the
repricing:
10-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT TIME REMAINING AT
OPTIONS/SARS TIME OF OF REPRICING NEW DATE OF
REPRICED OR REPRICING OR OR EXERCISE REPRICING OR
NAME DATE AMENDED(#)(1) AMENDMENT($) AMENDMENT($) PRICE($)(2) AMENDMENT
- ------------------------------ -------- -------------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski .......
Chairman of the Board and 12/15/98 20,000 $ 6.75 $ 18.50 $ 9.00 7.21 years
Chief Executive Officer 12/15/98 14,001 6.75 24.25 11.60 8.21 years
12/15/98 14,000 6.75 23.75 11.60 9.27 years
Monty R. Standifer...........
Senior Vice President, 12/15/98 10,000 6.75 18.50 9.00 7.21 years
Chief Financial Officer, 12/15/98 34,501 6.75 24.25 11.60 8.21 years
Treasurer and Secretary 12/15/98 7,000 6.75 23.75 11.60 9.27 years
James F. Wimpress, Jr........
Senior Vice President-- 12/15/98 17,501 6.75 21.38 11.60 9.06 years
Store Operations
William S. Kotch III ........
Vice President-- Real 12/15/98 2,400 6.75 18.50 9.00 7.21 years
Estate 12/15/98 3,500 6.75 24.25 11.60 8.21 years
12/15/98 3,500 6.75 23.75 11.60 9.27 years
</TABLE>
- ------------------
(1) Under the option repricing, officers of Gadzooks were eligible to exchange
one and one half previously granted options for every option repriced at
an exercise price of $9.00 per share and two previously granted options
for every option repriced at an exercise price of $11.60 per share.
(2) The exercise price for the repriced options was determined as follows: (i)
options with an exercise price greater than $20.00 per share were repriced
at $11.60 per share; (ii) options with an exercise price between
8
<PAGE> 11
$15.00 and $19.99 per share were repriced at $9.00 per share; and (iii)
options with an exercise price under $15.00 were not repriced.
The following table sets forth, as of January 30, 1999, 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
NO. OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED JANUARY 30, 1999 JANUARY 30, 1999(1)
ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- -------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski,............. 87,000 $1,471,464 60,995 101,686 $ 171,203 $ 202,054
Chairman of the Board and Chief
Executive Officer
David G. Mangini(2)................ -- -- -- 125,000 -- --
President and Chief Operating
Officer
Monty R. Standifer................. -- -- 10,900 40,600 -- --
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
James F. Wimpress, Jr.............. -- -- 3,500 24,000 -- --
Senior Vice President-- Store
Operations
William S. Kotch III,.............. -- -- 11,184 17,263 12,191 12,189
Vice President-- Real Estate
</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 30,
1999 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.
(2) Mr. Mangini left Gadzooks in April 1999 and all such stock options were
cancelled upon his departure from Gadzooks.
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
Gadzooks' pre-tax profit for the fiscal year. Executive officers did not
receive any bonuses for fiscal 1998. Certain corporate management employees
received bonuses of approximately $30,000 for fiscal 1998. Gadzooks' 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
9
<PAGE> 12
supervision and store management personnel for fiscal 1998 were approximately
$1,370,000. The executive officers' and corporate management's bonus plans are
reviewed and approved by the Compensation Committee of the 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 Gadzooks adopted the 1992
Incentive and Nonstatutory Stock Option Plan (the "Incentive Plan"). The
Incentive Plan is currently administered by the Compensation Committee (the
"Committee"). Subject to the express provisions of the Incentive Plan, the
Committee may, from time to time, determine the persons 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 was increased from 900,000 to 1,500,000 at
the 1998 Annual Meeting of Shareholders. As of January 30, 1999, options to
purchase approximately 755,822 shares were outstanding under the Incentive Plan
with a weighted average exercise price of approximately $9.90 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 Gadzooks 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 January 30, 1999, options
to purchase 86,109 shares were outstanding under the Key Employee Plan, all of
which have an exercise price of $3.15 per share, and options for 186,542 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, Gadzooks adopted the Gadzooks, Inc. Employees'
Savings Plan (the "401(k) Plan"). All employees who have been employed by
Gadzooks 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 Gadzooks will make
regular matching contributions to the 401(k) Plan each year in the amount of
50% of the participant's contribution, up to 5% of the participant's
compensation, for the year. The 401(k) Plan also provides that Gadzooks may
determine to make a discretionary profit-sharing contribution to the plan each
year based upon Gadzooks' profitability for that year. As of the date of this
Proxy Statement, Gadzooks has not made any profit-sharing contributions to the
401(k) Plan. Employee contributions and Gadzooks' matching contributions are
paid to a corporate trustee and invested in Common Stock and various funds at
the discretion of the participant. Gadzooks' 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. 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 Code
so that contributions by employees or by Gadzooks to the 401(k) Plan, and
income earned on such contributions, are not taxable to employees until
withdrawn from the 401(k) Plan.
EMPLOYEE STOCK PURCHASE PLAN
In March 1998, the Board of Directors adopted the Gadzooks, Inc. Employee
Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan is
currently administered by the Committee. Any person who is an employee of
Gadzooks who is scheduled to work at least 20 hours per week on a regular basis
and has completed six months of employment with Gadzooks is eligible to
participate in the Stock Purchase Plan. The Stock Purchase
10
<PAGE> 13
Plan is implemented by 24 monthly offerings of the Common Stock (the
"Offerings") commencing on April 1, 1998 and on the first day of each calendar
month thereafter ending with March 1, 2000. Common Stock is purchased for
participants in the Stock Purchase Plan as of the last day of each Offering
with the money deducted from their pay checks during the Offering. The purchase
price per share of Common Stock is an amount equal to 85% of the fair market
value of a share of Common Stock on the last day of such Offering. The maximum
aggregate number of shares that may be purchased during an Offering is 2,500
shares.
EMPLOYMENT AGREEMENTS
Gadzooks has entered into a severance protection agreement with each of
Messrs. Szczepanski and Standifer pursuant to which Gadzooks will provide
certain benefits to each such executive in the event his employment is
terminated under certain conditions, including a change of control. If the
executive's employment with Gadzooks is terminated within twenty-four months
following a change in control for any reason other than for cause or
disability, death, or by the executive other than for good reason, the
executive shall be entitled to (i) all accrued compensation and a pro rata
bonus, (ii) severance pay equal to two times the sum of such executive's base
salary and annual bonus and (iii) Gadzooks will continue to provide the
executive with medical and dental coverage. If the executive's termination of
employment with Gadzooks is not in connection with a change in control, the
executive shall be entitled to the benefits discussed above except (i) the
severance pay will be paid in the form of a biweekly periodic salary
continuation payment for two years from the termination date with the amounts
paid during the second year reduced by the amount the executive receives from
other employment and (ii) the medical and dental coverage will continue until
the earlier of the second anniversary of the termination date or the date the
executive becomes eligible for Medicare coverage. In addition, each executive
agrees that upon termination of his employment with Gadzooks, he will not
disclose any confidential information relating to Gadzooks and he will not
solicit, interfere or compete with Gadzooks, its business, its clients or its
customers for a period of twenty-four months.
Gadzooks has an executive retirement agreement with Mr. Standifer pursuant
to which Mr. Standifer or his estate shall be eligible to receive certain
benefits on the termination of his employment with Gadzooks as a result of
either death, termination without cause, or retirement. Upon such termination
(i) all of Mr. Standifer's unexpired Gadzooks' stock options will vest, (ii)
Gadzooks will continue to provide Mr. Standifer and his spouse medical, dental
and life insurance coverage, (iii) Gadzooks may enter into a consulting
relationship with Mr. Standifer to facilitate the transition to Mr. Standifer's
successor and (iv) Mr. Standifer will receive his pro rata bonus for the
current fiscal year.
Gadzooks has an agreement with Mr. Kotch pursuant to which Gadzooks will
continue to pay his respective base salary and health insurance premiums for a
period of six months in the event of termination without cause. In addition,
each of the remaining Named Executive Officers has agreed not to participate,
while an employee of Gadzooks and for a period of one year thereafter, in a
business or enterprise that competes with Gadzooks.
Gadzooks has an employment agreement with each of Ms. Masters and Mr.
Krainess covering each officer's first twelve months of employment with the
Company, pursuant to which Gadzooks will continue to pay such officer's base
salary for the remainder of their initial twelve month employment period in the
event of such officer's termination without cause. Also, Gadzooks has a
severance agreement with each of Ms. Masters and Mr. Krainess pursuant to which
Gadzooks will continue to pay such officer's base salary for a six-month period
in the event of such officer's termination without cause during their second
twelve months of employment.
11
<PAGE> 14
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE AND THE SHAREHOLDER
RETURN PERFORMANCE PRESENTATION 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 Committee established compensation policies and made the compensation
decisions described herein for fiscal 1998. 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 Gadzooks 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 Gadzooks 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 Gadzooks'
executive officers does not exceed the $1 million pay limit. As Gadzooks grows,
executive officer compensation may 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 1998, the Committee engaged an
independent consultant to assist them in reviewing the executive base salaries
and compensation packages paid by similar companies, primarily mall-based,
specialty retailers. To determine which specialty retailers are similar to
Gadzooks and would thus be appropriate for executive salary comparisons, the
industry segment, size and growth rate of the companies were considered.
Information from various public filings of comparable specialty retailers was
used in the executive salary review. The Chief Executive Officer's base salary
of $440,000 for fiscal 1998 was determined in this manner (see the Summary
Compensation Table). The Committee believes that the foregoing executive salary
review, 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). To assist in determining executive compensation for fiscal
1999, the Committee engaged another independent consultant near the end of
fiscal 1998 to review base salaries and total executive compensation packages
of similar companies.
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 Gadzooks, as well as the
individual contribution of each officer. Accordingly, the executive officers of
Gadzooks, including the Chief Executive Officer, participate in an annual
executive incentive bonus plan ("Incentive Bonus Plan") which provides for cash
bonuses based upon Gadzooks' 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 Gadzooks' annual financial plan. The Incentive Bonus 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 Bonus Plan provides
for greater percentages of
12
<PAGE> 15
such higher levels of profitability to be accrued in the Incentive Bonus Plan.
The purpose of the Incentive Bonus 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 Bonus 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.
In fiscal 1995 and 1996, Gadzooks exceeded its annual financial plan and
bonuses were paid to the executive officers. In fiscal 1997 and 1998, Gadzooks
did not meet the minimum level of profitability required for executive officers
to earn bonuses, and as a result there were no Incentive Bonus Plan payments
for fiscal 1997 and 1998.
Cash bonuses earned under the Incentive Bonus Plan are paid each year upon
completion of Gadzooks' annual audit of the results of operations for the
previous fiscal year by Gadzooks' outside auditors.
LONG TERM INCENTIVES -- COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
The final portion of the executive officers' compensation consists of
incentive stock options as listed in this Proxy Statement in the table entitled
"Option Grants in Last Fiscal Year." Gadzooks has utilized this award to
provide long term incentives. As noted on page 7, all the Named Executive
Officers were each granted a certain number of options during 1998.
The Committee and the Board of Directors believe that stock options are a
critical component of the compensation offered by Gadzooks to promote long-term
retention of key employees, motivate high levels of performance and recognize
employee contributions to the success of Gadzooks. Because of the decrease in
the price of Gadzooks' stock from the original pricing of many of the
outstanding employee stock options, the Board believed that such stock options
were no longer an effective tool to encourage employee retention or to motivate
high levels of performance.
Accordingly, the Board of Directors approved the repricing of employee
stock options (the "1998 Option Repricing"), which took effect on December 15,
1998. Under the terms of the 1998 Option Repricing, officers of Gadzooks were
eligible to exchange one and one half (1.5) previously granted options for
every option repriced at an exercise price of $9.00 per share and two (2)
previously granted options for every option repriced at an exercise price of
$11.60 per share, subject to the repricing guidelines set forth below.
Non-officer employees were eligible to exchange their previously granted
options for new options to purchase the same number of shares, subject to the
repricing guidelines set forth below. The repricing guidelines were as follows:
(i) options with an exercise price greater than $20.00 per share were repriced
with an exercise price of $11.60 per share; (ii) options with an exercise price
between $15.00 and $19.99 per share were repriced with an exercise price of
$9.00 per share; and (iii) options with an exercise price under $15.00 were not
repriced. The closing price of Gadzooks Common Stock immediately prior to the
1998 Option Repricing on December 15, 1998 was $6.75. The vesting schedule and
termination dates of the repriced options remain unchanged.
Compensation Committee
Robert E.M. Nourse, Chairman
G. Michael Machens
13
<PAGE> 16
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 January 30, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
OCTOBER 5, 1995 THROUGH JANUARY 30, 1999(2)
[GRAPH]
- -----------------
(1) For purposes of this presentation, Gadzooks 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 Gadzooks' Common Stock commenced on October 6, 1995 and Gadzooks'
1998 fiscal year ended on January 30, 1999.
(2) Assumes that $100.00 was invested on October 5, 1995 in Gadzooks' Common
Stock at Gadzooks' initial offering price of $9.33 per share and at the closing
sales price for each index on that date and that all dividends were reinvested.
No cash dividends have been declared on the Common Stock. Shareholder returns
over the indicated period should not be considered indicative of future
shareholder returns.
14
<PAGE> 17
CERTAIN TRANSACTIONS
The following directors and executive officers of Gadzooks 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 Gadzooks' 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 Gadzooks. Officers,
directors and greater than 10% stockholders are required by SEC regulations to
furnish Gadzooks with copies of all Section 16(a) reports they file. To
Gadzooks' knowledge and based solely on review of the copies of such reports
furnished to Gadzooks during the period commencing February 1, 1998 and ending
January 30, 1999, its officers, directors and greater than 10% beneficial
owners had complied with all applicable Section 16(a) filing requirements,
except that a Form 4 was filed late with respect to a conversion of stock
options to Common Stock on August 6, 1998 for Gerald R. Szczepanski, a Form 4
was filed late with respect to a purchase of Common Stock on August 20, 1998
for Monty R. Standifer and a Form 5 was filed late with respect to a grant of
stock options on September 8, 1998 for James F. Wimpress Jr.
15
<PAGE> 18
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 15, 1999 with respect to (i) each
person known by Gadzooks to own beneficially more than five percent of the
Common Stock; (ii) each of Gadzooks' directors and 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 15, 1999, but options owned by others (even if exercisable within
60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
------------------------------------------------
NAME SHARES PERCENTAGE
- ------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
Gerald R. Szczepanski(1)..................................... 278,258 3.10%
Monty R. Standifer........................................... 17,854 *
James F. Wimpress, Jr........................................ 4,500 *
William S. Kotch III(2)...................................... 23,024 *
G. Michael Machens(3)........................................ 483,403 5.43
Robert E.M. Nourse(4)........................................ 51,184 *
Lawrence H. Titus, Jr.(5).................................... 93,462 1.05
Ron G. Stegall(6)............................................ 1,560 *
Claire's Stores, Inc.(7)..................................... 1,042,000 11.7
3 S.W. 129th Avenue
Pembroke Pines, Florida 33027
Dimensional Fund Advisors, Inc.(8)........................... 541,100 6.08
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corp.(9)................................................. 761,100 8.56
82 Devonshire Street
Boston, Massachusetts 02109
Phillips-Smith Specialty Retail Group III, L.P.(10).......... 471,700 5.3
5080 Spectrum Drive
Suite 805 West
Addison, Texas 75001
Sirach Capital Management, Inc.(11).......................... 500,250 5.63
3323 One Union Square
Seattle, Washington 98101
All directors and executive officers as a group
(9 persons)(12)........................................... 953,245 9.55
</TABLE>
- ------------
* Less than 1%
(1) Includes 95,633 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1999.
(2) Includes 9,524 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1999.
(3) Of these shares, Mr. Machens indirectly owns 471,000 shares, which are
held by Phillips-Smith Specialty Retail Group III, L.P. Mr. Machens is a
general partner of Phillips-Smith Management Company, L.P., which is the
general partner of Phillips-Smith Retail Group III, L.P. Mr. Machens
disclaims any beneficial
16
<PAGE> 19
ownership of such shares except to the extent of his beneficial ownership
in Phillips-Smith Specialty Retail Group III, L.P. The number of shares
also includes 4,973 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1999.
(4) Includes 12,114 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1999.
(5) Includes 4,640 shares of Common Stock subject to options exercisable
within 60 days of April 15, 1999.
(6) Includes 60 shares of Common Stock subject to options exercisable within
60 days of April 15, 1999.
(7) Based on a report on Schedule 13D filed with the SEC, dated September 14,
1998.
(8) Based on a report on Schedule 13G filed with the SEC, dated February 11,
1999. Dimensional Fund Advisors, Inc. ("Dimensional"), an investment
advisor registered under the Investment Advisors Act of 1940, furnishes
investment advice to four investment companies registered under the
Investment Company Act of 1940 and serves as investment manager to certain
other investment vehicles, including commingled group trusts. (These
investment companies and investment vehicles are the "Portfolios"). In its
role as investment advisor and investment manager, Dimensional possesses
both voting and investment power over the securities of Gadzooks that are
owned by the Portfolios. All securities reported on this Schedule 13G are
owned by the Portfolios and Dimensional disclaims beneficial ownership of
such securities.
(9) Based on a report on Schedule 13G filed with the SEC, dated February 12,
1999. 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 740,000 shares or 8.323% of the
Common Stock outstanding of Gadzooks 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"). The ownership of one
investment company, Fidelity Capital Appreciation Fund, amounted to
500,000 shares or 5.624% of the Common Stock outstanding. Fidelity Capital
Appreciation Fund has its principal business office at 82 Devonshire
Street, Boston, Massachusetts 02109. Edward C. Johnson 3d, FMR Corp.,
through its control of Fidelity, and the Funds each has sole power to
dispose of the 740,000 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 2,000 shares of the Common Stock outstanding of
Gadzooks 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, each has sole voting and
dispositive power over 2,000 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 18,
1999.
(11) Based on a report on Schedule 13G filed with the SEC, dated January 29,
1997.
(12) These shares include 471,700 shares indirectly owned by Mr. Machens. These
shares also include 126,944 shares of Common Stock subject to stock
options exercisable within 60 days of April 15, 1999.
B. RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of PricewaterhouseCoopers
LLP, which has served as independent auditors of Gadzooks since 1992, as
independent auditors of Gadzooks for the fiscal year ending January 29, 2000,
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 Gadzooks and in
accordance with
17
<PAGE> 20
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 PricewaterhouseCoopers LLP as Gadzooks'
independent auditors without the approval of the shareholders of Gadzooks
whenever the Board of Directors deems such termination necessary or
appropriate. A representative of PricewaterhouseCoopers LLP 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 1998 Annual Report of Gadzooks, 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 Gadzooks' 2000 Annual Meeting of Shareholders must
forward such proposal to the Secretary of Gadzooks at the address indicated on
the first page of this proxy statement, so that the Secretary receives it no
later than January 6, 2000. Pursuant to Rule 14a-4(c)(1) under the Exchange
Act, if any shareholder proposal intended to be presented at the 2000 annual
meeting without inclusion in Gadzooks' proxy statement for such meeting is
received at Gadzooks' principal office after March 23, 2000, then a proxy will
have the ability to confer discretionary authority to vote on such proposal.
FORM 10-K
COPIES OF GADZOOKS' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JANUARY
30, 1999, 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 $125.00 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 7, 1999
18
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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 5, 1999, at the
annual meeting of stockholders to be held on June 17, 1999 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 SIDE.)
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A VOTE "FOR" PROPOSALS 1 AND 2 IS RECOMMENDED BY THE BOARD OF DIRECTORS. Please mark your votes as
indicated in this example [X]
ITEM 1. Election of directors NOMINEES: G. Michael Machens, Lawrence H. ITEM 2. Proposal to ratify the
Titus, Jr. appointment of
PricewaterhouseCoopers LLP
as independent auditors of
the corporation.
FOR WITHHOLD AUTHORITY (INSTRUCTIONS: To withhold authority to vote
the nominees to withhold votes for the for any individual nominee, write FOR AGAINST ABSTAIN
listed to the right nominees listed to the right that nominee's name in the space provided below.) [ ] [ ] [ ]
[ ] [ ] -------------------------------------------------
ITEM 3. In their discretion, the Proxies are authorized to vote upon such CHANGE OF ADDRESS AND OR
other business as may properly come before the meeting. COMMENTS MARK HERE [ ]
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE: SIGNATURE: DATE:
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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.
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