<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 Under Rule 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)(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:
-------------------------------------------------------------
<PAGE> 2
[GRAPHIC]
Dallas, Texas
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, JUNE 15, 2000
To the Shareholders of Gadzooks, Inc.
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") of
Gadzooks, Inc., a Texas corporation (the "Company" or "Gadzooks"), will be held
on Thursday, June 15 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 2003 Annual Meeting
of Shareholders;
2. To approve an Amendment to the Gadzooks, Inc. 1992 Incentive
and Nonstatutory Stock Option Plan (the "Incentive Plan") to
increase the aggregate number of shares available for issuance
thereunder from 1,500,000 to 2,100,000;
3. To approve an Amendment to the Gadzooks, Inc. Employee Stock
Purchase Plan (the "Stock Purchase Plan") to (i) increase the
number of monthly offerings to 60, (ii) increase the maximum
aggregate number of shares reserved for issuance from 60,000
to 110,000, (iii) extend the term of the Stock Purchase Plan
to March 31, 2003, (iv) remove the provision limiting each
offering to 2,500 shares, and (v) entitle the Company to
withhold any necessary employment taxes or other similar
amounts with respect to the purchase or sale of shares of
common stock under the Stock Purchase Plan;
4. To ratify the selection of PricewaterhouseCoopers LLP as
independent auditors for Gadzooks for the fiscal year ending
February 3, 2001; and
5. To transact all other business that may properly come before
such meeting or any adjournment(s) thereof.
The close of business on Tuesday, May 2, 2000 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.
By: /s/ JAMES A. MOTLEY
-----------------------------
James A. Motley
Secretary
May 11, 2000
<PAGE> 3
[GRAPHIC]
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 2000 Annual Meeting of Shareholders (the "Annual Meeting") to be
held on Thursday, June 15, 2000 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 11, 2000.
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 2, 2000, the record date for the
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting, 8,933,330 shares of Common Stock were outstanding, 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.
<PAGE> 4
A. ELECTION OF DIRECTORS
Two directors are to be elected at the Annual Meeting. Gerald R.
Szczepanski and Ron G. Stegall have been nominated to serve as directors and, if
elected, will serve until Gadzooks' Annual Meeting of Shareholders in 2003 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 nominees listed below. 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. SZCZEPANSKI
AND STEGALL 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
DIRECTOR TERM
NAME AGE POSITION SINCE ENDING
---- ----- -------- --------- ----------
<S> <C> <C> <C> <C>
Gerald R. Szczepanski................... 51 Chairman of the Board, President, 1983 2000
Chief Executive Officer and
Director
Lawrence H. Titus, Jr................... 49 Director 1983 2002
G. Michael Machens...................... 49 Director 1992 2002
Robert E.M. Nourse...................... 61 Director 1993 2001
Ron G. Stegall.......................... 52 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 23 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
2
<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 venture capital firm specializing in e-commerce and retail
investments. 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.
The directors elected at the Annual Meeting will hold office until the
2003 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. Mr. Szczepanski, in his capacity as an
executive officer of Gadzooks, 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>
James F. Wimpress, Jr.......................... 46 Senior Vice President - Store Operations
Paula Y. Masters............................... 37 Senior Vice President - General Merchandising
Manager
James A. Motley................................ 36 Vice President, Chief Financial Officer and
Secretary
William S. Kotch III........................... 49 Vice President - Real Estate
Stephen R. Puterbaugh.......................... 51 Vice President - Human Resources and Loss
Prevention
</TABLE>
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 25 years of experience in the retailing
industry.
3
<PAGE> 6
PAULA Y. MASTERS has served as Senior Vice President - General
Merchandising Manager since October 1999. Ms. Masters served as Vice President -
General Merchandising Manager of Gadzooks from January 1999 to October 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 15
years of experience in the apparel retailing business.
JAMES A. MOTLEY has served as Vice President, Chief Financial Officer
and Secretary since February 2000. Mr. Motley joined Gadzooks as Controller in
November 1997 and was promoted to the position of Vice President - Finance and
Secretary in May 1999. Prior to joining Gadzooks, Mr. Motley held the position
of Director of Accounting Systems and Procedures for Tandy Corporation. A
Certified Public Accountant, he served in the audit practice of Price Waterhouse
for over seven years before the Tandy position, working primarily on retail
audit engagements. Mr. Motley has over 12 years of experience in the 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 17 years of retail
leasing experience.
STEPHEN R. PUTERBAUGH has served as Vice President - Human Resources
and Loss Prevention since January 1999. Mr. Puterbaugh joined Gadzooks in August
1997 as Vice President - Human Resources. Most recently, Mr. Puterbaugh served
as Vice President - Human Resources for Dallas based Lil' Things from December
1994 to July 1997. Prior to December 1994, Mr. Puterbaugh held various Human
Resources and Operating positions with high growth retailers Circuit City, The
Gap and Sears. Mr. Puterbaugh has over 25 years of experience in the department
store and fashion specialty retail environment.
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 seven meetings during fiscal 1999. 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 1999. 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 three times during
fiscal 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1999, G. Michael Machens and Robert E. M. Nourse served as
members of the Compensation Committee of Gadzooks. Neither of these individuals
was an officer or employee of Gadzooks at any time during fiscal 1999.
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 at an exercise price equal to the fair market value of such
shares of Common Stock on the date the option is granted. 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 had 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. On March 10,
2000, under the Director Plan, Mr. Machens, Mr. Nourse, Mr. Titus and Mr.
Stegall were each granted options to purchase 2,000 shares of Common Stock at
$16.25 per share, vesting over a two-year period and exercisable through March
2010. As of March 10, 2000, options to purchase 47,317 shares of Common Stock
were outstanding under the Director Plan with a weighted average exercise price
of $19.02 per share. Under the Director Plan, 13,139 of the options granted to
date vest over a four-year period, and 34,178 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 1999.
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 1999 $440,000 $166,920 120,000 $28,666
Chairman of the Board, 1998 440,000 -- 48,001 21,711
President and Chief Executive 1997 400,000 -- 28,000 13,269
Officer
James F. Wimpress, Jr.(3) 1999 240,000 74,880 30,000 10,759
Senior Vice President - Store 1998 240,000 -- 27,501 21,510
Operations 1997 20,000 -- 35,000 800
Paula Y. Masters(4) 1999 197,722 85,800 105,000 7,700
Senior Vice President - 1998 3,077 -- 15,000 700
General Merchandising Manager 1997 -- -- -- --
William S. Kotch III 1999 150,000 31,200 15,000 16,155
Vice President - Real Estate 1998 150,000 -- 9,400 13,581
1997 140,000 -- 7,000 10,368
Stephen R. Puterbaugh(5) 1999 141,947 31,200 25,000 11,949
Vice President - Human 1998 101,153 -- 16,450 7,801
Resources and Loss Prevention 1997 33,673 -- -- --
</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 the Company's contributions to the Stock Purchase
Plan, 401(k) Plan and automobile allowances. In the case of Mr.
Wimpress, the amount for 1998 includes $11,910 for moving expenses.
(3) Mr. Wimpress joined Gadzooks in January 1998.
(4) Ms. Masters joined Gadzooks in January 1999.
(5) Mr. Puterbaugh joined Gadzooks in August 1997.
6
<PAGE> 9
The following table provides information concerning stock options
granted to the Named Executive Officers in fiscal 1999. In addition, in
accordance with the regulations of the Securities and Exchange Commission (the
"SEC"), hypothetical gains or "option spreads" that would exist for the
respective options are shown. These gains are based on assumed rates of annual
stock price appreciation of 5% and 10% from the date the options were granted.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------
POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED ANNUAL
NUMBER OF TOTAL OPTIONS RATES OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM(2)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) 1999 ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- ----------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski.......... 60,000 10.80% $ 6.75 4/7/09 $254,702 $ 645,466
Chairman of the Board, President 60,000 10.80 12.38 1/28/10 467,143 1,183,832
and Chief Executive Officer
James F. Wimpress, Jr.......... 10,000 1.80 6.75 4/7/09 42,450 107,578
Senior Vice President - Store 5,000 0.90 11.69 6/17/09 36,759 93,154
Operations 15,000 2.70 12.38 1/28/10 116,786 295,958
Paula Y. Masters............... 15,000 2.70 9.63 5/21/09 90,844 230,216
Senior Vice President - General 20,000 3.60 11.69 6/17/09 147,036 372,617
Merchandising Manager 50,000 9.00 8.00 10/29/09 251,558 637,497
20,000 3.60 12.38 1/28/10 155,714 394,611
William S. Kotch III........... 7,500 1.35 6.75 4/7/09 31,838 80,863
Vice President - Real Estate 7,500 1.35 12.38 1/28/10 58,393 147,979
Stephen R. Puterbaugh.......... 7,500 1.35 6.75 4/7/09 31,838 80,683
Vice President - Human Resources 17,500 3.15 12.38 1/28/10 136,250 345,284
and Loss Prevention
</TABLE>
- ---------------------
(1) The options granted are subject to a five-year vesting schedule with
20% becoming exercisable on the first, second, third, fourth and fifth
anniversary of the date of grant.
(2) 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.
7
<PAGE> 10
The following table sets forth, as of January 29, 2000, 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 JANUARY 29, 2000 JANUARY 29, 2000(1)
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Szczepanski........... -- -- 125,561 157,120 $ 967,623 $ 442,972
Chairman of the Board, President
and Chief Executive Officer
James F. Wimpress, Jr........... -- -- 9,002 48,499 9,722 84,979
Senior Vice President - Store
Operations
Paula Y. Masters................ -- -- 3,000 117,000 14,820 333,330
Senior Vice President - General
Merchandising Manager
William S. Kotch III............ -- -- 17,827 25,620 100,794 80,714
Vice President - Real Estate
Stephen R. Puterbaugh........... -- -- 5,290 36,160 15,876 71,930
Vice President - Human Resources
and Loss Prevention
</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 29,
2000 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 Gadzooks' earnings before interest and income taxes for the fiscal
year. Certain corporate management employees, including executive officers,
received bonuses of approximately $823,000 for fiscal 1999. 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 supervision and store
management personnel for fiscal 1999 were approximately $1,360,000. 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.
8
<PAGE> 11
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 currently
available for grant under the Incentive Plan is 1,500,000. As of January 29,
2000, options to purchase approximately 926,000 shares were outstanding under
the Incentive Plan with a weighted average exercise price of approximately $9.91
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. At the Annual
Meeting, the shareholders are being asked to approve an amendment to the
Incentive Plan to increase the aggregate number of shares available for issuance
to 2,100,000.
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 29, 2000, options to purchase
86,109 shares were outstanding under the Key Employee Plan, all of which have an
exercise price of $3.15, 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 Plan is currently
implemented by 24 monthly offerings of the Common Stock (each an "Offering")
commencing on April 1, 1998 and on the first day of each calendar month
thereafter ending with March 1, 2000. Currently, the maximum aggregate number of
shares that may be purchased during an Offering is 2,500 shares. Common Stock is
9
<PAGE> 12
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. At the
Annual Meeting, the shareholders are being asked to approve the Stock Purchase
Plan Amendments, which (i) increase the number of monthly offerings to 60, (ii)
increase the maximum aggregate number of shares reserved for issuance under the
Stock Purchase Plan from 60,000 to 110,000, (iii) extend the term of the Stock
Purchase Plan to March 31, 2003, (iv) remove the provision limiting each
Offering to 2,500 shares, and (v) entitle the Company to withhold any necessary
employment taxes or other similar amounts with respect to the purchase or sale
of shares of Common Stock under the Stock Purchase Plan.
EMPLOYMENT AGREEMENTS
Gadzooks has entered into a severance protection agreement with Mr.
Szczepanski pursuant to which Gadzooks will provide certain benefits to him in
the event his employment is terminated under certain conditions, including a
change of control. If Mr. Szczepanski'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, Mr. Szczepanski
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 a severance agreement with Messrs. Kotch and Wimpress
pursuant to which Gadzooks will continue to pay such officer's base salary for a
period of six months in the event of termination without cause. In addition, the
severance agreement with Mr. Kotch provides that Gadzooks will continue to pay
Mr. Kotch's health insurance premiums for a period of six months in the event of
termination without cause. Each of the remaining Named Executive Officers has
also agreed not to participate, while an employee of Gadzooks and for a period
of two years thereafter, in a business or enterprise that competes with
Gadzooks.
Gadzooks has a severance agreement with Ms. Masters pursuant to which
Gadzooks will continue to pay Ms. Masters' base salary for a six-month period in
the event of her termination without cause during her second twelve months of
employment.
10
<PAGE> 13
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 1999. 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
The Committee engages an independent consultant to assist them in
reviewing the executive base salaries and compensation packages paid by similar
companies, primarily mall-based, specialty retailers. The industry segment, size
and growth rate of companies are considered to determine which specialty
retailers are similar to Gadzooks and appropriate for executive salary
comparisons. Information from various public filings of comparable specialty
retailers is also used in the executive salary review. The Chief Executive
Officer's base salary of approximately $440,000 for fiscal 1999 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).
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 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.
11
<PAGE> 14
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. In fiscal 1999, Gadzooks' profitability
exceeded the minimum target level and, accordingly, bonuses were paid to the
executive officers.
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
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 1999.
Compensation Committee
Robert E.M. Nourse, Chairman
G. Michael Machens
12
<PAGE> 15
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 28, 2000.
COMPARISON OF CUMULATIVE TOTAL RETURN FROM
OCTOBER 5, 1995 THROUGH JANUARY 28, 2000(2)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Nasdaq Market Index Retail Index Gadzooks
------------------- ------------ --------
Dates
- -------
<S> <C> <C> <C>
10/5/95 100.00 100.00 100.00
1/26/96 102.85 94.63 176.85
1/31/97 137.25 118.51 301.45
1/30/98 162.00 138.28 214.36
1/29/99 253.41 169.08 75.67
1/28/00 382.19 138.55 132.69
</TABLE>
- --------------------
(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'
1999 fiscal year ended on January 29, 2000.
(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.
13
<PAGE> 16
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, 1999 and ending
January 29, 2000, its officers, directors and greater than 10% beneficial owners
had complied with all applicable Section 16(a) filing requirements, except for a
Form 3 due in November 1999 with respect to Paula Y. Masters, a Form 4 due in
April 1999 with respect to William S. Kotch III covering two transactions and a
Form 5 due in February 2000 with respect to Messrs. Szczepanski, Motley, Kotch
and Wimpress and Ms. Masters covering one transaction each.
14
<PAGE> 17
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, 2000 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, 2000, 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)..................................... 349,319 3.9%
James F. Wimpress, Jr.(2).................................... 16,927 *
Paula Y. Masters(3).......................................... 9,873 *
William S. Kotch III(4)...................................... 65,516 *
Stephen R. Puterbaugh(5)..................................... 18,780 *
James A. Motley(6)........................................... 12,062 *
G. Michael Machens(7)........................................ 25,554 *
Robert E.M. Nourse(8)........................................ 53,945 *
Lawrence H. Titus, Jr.(9).................................... 96,139 1.1
Ron G. Stegall(10)........................................... 4,120 *
Dimensional Fund Advisors, Inc.(11).......................... 605,500 6.8
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Sirach Capital Management, Inc.(12).......................... 500,250 5.6
3323 One Union Square
Seattle, Washington 98101
Fuller & Thaler Asset Management, Inc.(13)................... 539,300 6.0
411 Borel Avenue, Suite 402
San Mateo, California 94402
Wanger Asset Management, L.P.(14)............................ 1,286,000 14.4
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
All directors and executive officers as a group
(10 persons)(15).......................................... 652,235 7.3
</TABLE>
- ------------------
* Less than 1%
(1) Includes 147,160 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(2) Includes 11,002 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(3) Includes 3,000 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(4) Includes 21,207 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(5) Includes 7,080 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
15
<PAGE> 18
(6) Includes 10,000 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(7) Includes 7,734 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(8) Includes 7,734 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(9) Includes 7,317 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(10) Includes 2,036 shares of Common Stock subject to options exercisable
within 60 days of April 15, 2000.
(11) Based on a report on Schedule 13G filed with the SEC, dated February 3,
2000. 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 commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds." In its role
as investment advisor or manager, Dimensional possesses both voting and
investment power over the securities of Gadzooks that are owned by the
Funds. All securities reported on this Schedule 13G are owned by the
Funds and Dimensional disclaims beneficial ownership of such
securities.
(12) Based on a report on Schedule 13G filed with the SEC, dated January 29,
1997.
(13) Based on a report on Schedule 13G filed with the SEC, dated February
15, 2000. Fuller and Thaler Asset Management, Inc. has the right to
receive or the power to direct the receipt of dividends from, or the
proceeds from the sale of, the Common Stock. No account individually
holds more than five percent of the outstanding Common Stock.
(14) Based on a report on Schedule 13G filed with the SEC, dated February
11, 2000. These 1,286,000 shares have been acquired on behalf of
discretionary clients of Wanger Asset Management, L.P., including Acorn
Investment Trust. Persons other than Wanger Asset Management, L.P. and
Wanger Asset Management, Ltd. are entitled to receive all dividends
from, and proceeds from the sale of, these shares. Acorn Investment
Trust is the only such person known to be entitled to all dividends
from, and all proceeds from the sale of, shares reported herein to the
extent of more than five percent of the class.
(15) These shares include 224,270 shares of Common Stock subject to stock
options exercisable within 60 days of April 15, 2000.
B. APPROVAL OF THE AMENDMENT TO THE 1992 INCENTIVE AND
NONSTATUTORY STOCK OPTION PLAN
The purposes of the Incentive Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to the employees and consultants of the Company and to
promote the success of the Company's business.
The Incentive Plan currently authorizes the issuance of up to 1,500,000
shares of Common Stock pursuant to options granted under the Incentive Plan. As
of March 11, 2000, 1,457,289 shares of Common Stock had been optioned, sold or
otherwise subtracted from the maximum number of shares available under the
Incentive Plan. The Board of Directors has determined that it would be desirable
to increase the aggregate number of shares of Common Stock that may be optioned
and sold under the Incentive Plan to 2,100,000 in order to have available
appropriate long-term incentives and competitive compensation opportunities for
the employees of the Company. Accordingly, subject to shareholder approval, the
Board of Directors has adopted an amendment to the Incentive Plan (the
"Incentive Plan Amendment") providing for an increase in the aggregate number of
shares of Common Stock available for issuance under the Incentive Plan from
1,500,000 to 2,100,000. The full text of the proposed amendment is included in
Appendix A attached to this Proxy Statement.
General. In February 1992, the Board of Directors of the Company
adopted 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
16
<PAGE> 19
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. As of March 11, 2000, options to purchase 999,689
shares were outstanding under the Incentive Plan with a weighted average
exercise price of $10.23 per share. All of the options granted to date under the
Incentive Plan are exercisable either immediately or over a three-, four- or
five-year period. On October 12, 1995 and August 7, 1998, the Company filed with
the Commission registration statements on Form S-8, under the Securities Act of
1933, as amended (the "Securities Act"), registering the shares of Common Stock
underlying the options offered under the Incentive Plan.
Employees Who May Participate in the Incentive Plan. All officers,
employees and consultants of the Company or any of its affiliates may be granted
options under the Incentive Plan. Pursuant to the terms of the Incentive Plan,
consultants are eligible to receive only nonstatutory stock options. On October
5, 1995 the registration statement on Form S-1, pursuant to which the Company
registered shares of its Common Stock for sale to the public, was declared
effective. Under the terms of the Incentive Plan, non-employee directors became
ineligible to receive options under the Incentive Plan upon the effectiveness of
the registration statement. Prior to the effectiveness of the registration
statement, a non-employee director received nonstatutory stock options under the
Incentive Plan. As of March 31, 2000, approximately 4,000 employees of the
Company were eligible to participate in the Incentive Plan.
Exercise. Each option granted under the Incentive Plan is exercisable
at such times and under such conditions permissible under the terms of the
Incentive Plan as determined by the Committee at the time the option is granted.
Shares of Common Stock purchased upon exercise of options ("Option
Shares") shall at the time of purchase be paid for in full. To the extent that
the right to purchase shares has accrued under the Incentive Plan, options may
be exercised from time to time by written notice to the Company stating the full
number of shares with respect to which the option is being exercised,
accompanied by full payment for the shares by cash, check or surrender of other
shares of Common Stock having a fair market value on the date of surrender equal
to the aggregate exercise price of the shares as to which the option is being
exercised. An option may not be exercised for a fraction of a share.
The exercise price of options granted under the Incentive Plan may not
be less than 100% of the fair market value of the Common Stock on the date of
grant (110% in the case of ISOs granted to a holder of more than 10% of the
total voting power of all classes of the Company's capital stock on the date of
the grant). Absent a public market for the Common Stock, the Incentive Plan
provides for the fair market value per share of Common Stock to be determined by
the Board of Directors.
Non-Assignability. No option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution. During the
lifetime of an optionee, the option is exercisable only by the optionee.
Term. An ISO may not be granted with a term exceeding ten years (five
years in the case of ISOs granted to a holder of more than 10% of the total
voting power of all classes of the Company's capital stock on the date of the
grant). The term of any non-ISOs under the Incentive Plan will be no more than
ten years from the date of grant (five years and one day in the case of a
non-ISO granted to a holder of more than 10% of the total voting power of all
classes of the Company's capital stock on the date of grant).
The Incentive Plan will terminate on February 26, 2002; but the Board
of Directors may terminate the Incentive Plan at any time prior thereto.
Termination of the Incentive Plan shall not affect, without the consent of the
optionee, any option theretofore granted under the Incentive Plan.
Termination of Relationship. In the event that an optionee terminates
or is terminated from his relationship with the Company and its affiliates for
reasons other than the optionee's death or disability, the optionee shall have
the right to exercise his options at any time within thirty days (or such other
period of time not exceeding three months as is determined by the Committee at
the time of grant of the option) from the date of termination to the extent the
optionee was entitled to exercise the options at the date of such termination.
In the event that an optionee's relationship with the Company (or an
affiliate) is terminated because such optionee has become totally or permanently
disabled within the meaning of Section 22(e)(3) of the Code, the optionee shall
have the right to exercise his options at any time within six months (or such
other period of time not exceeding twelve months as is determined by the
Committee at the time of grant of the option) from the date of termination of
his
17
<PAGE> 20
relationship due to disability, to the extent the optionee was entitled to
exercise the options immediately prior to such occurrence.
In the event an optionee dies before his relationship with the Company
(or an affiliate) otherwise terminates, the optionee's estate or beneficiary
shall have the right to exercise his options at any time within six months from
the date of death of the optionee, but only to the extent of the right to
exercise that would have accrued had the optionee continued living and remained
an employee or consultant of the Company (or an affiliate) during the six month
period following the date of death.
If an optionee dies within thirty days (or such other period of time
not exceeding three months as is determined by the Committee at the time of
grant of the option) after the termination of his relationship with the Company
(or an affiliate), the optionee's estate or beneficiary shall have the right to
exercise the optionee's options at any time within six months following the date
of death of the optionee.
Adjustments to Options. In the event of an increase or decrease in the
number of outstanding shares of Common Stock as a result of a recapitalization,
stock dividend or other event, which increase or decrease is effected without
receipt of consideration by the Company, the number of shares for which options
may be granted under the Incentive Plan, the number of shares covered by each
outstanding option and the exercise price thereof shall be proportionately
adjusted by the Committee, subject to any required action by the shareholders of
the Company.
In the event of the proposed dissolution or liquidation of the Company,
all options under the Incentive Plan will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. In the event of the proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, all options under the Incentive Plan shall be assumed or equivalent
options shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, that the optionee shall have the right to exercise the option as
to all of the option shares, including shares as to which the option would not
otherwise be exercisable.
Amendment. The Board of Directors may, from time to time, alter, amend,
suspend, or discontinue the Incentive Plan, or alter or amend any and all option
agreements granted thereunder; provided, however, that no such action of the
Board of Directors, without the approval of the shareholders of Company, may
alter the provisions of the Incentive Plan so as to (i) increase the number of
shares of Common Stock subject to the Incentive Plan (except as described
above), (ii) change the designation of the class of employees or consultants
eligible to be granted options under the Incentive Plan, or (iii) materially
amend the Incentive Plan.
Federal Income Tax Aspects.
(a) ISOs
The Incentive Plan is intended to qualify as a stock option plan under
Section 422 of the Code. If the Incentive Plan qualifies as such, then an
employee who receives an ISO under the Incentive Plan will not be deemed to
recognize income either at the time of the grant of the option or, assuming that
the optionee has been an employee at all times during the period beginning on
the date of the grant and ending three months prior to the date of exercise, at
the time of exercise of the option. In the case of an employee who is disabled
within the meaning of Section 22(e)(3) of the Code, the optionee must have been
an employee at all times during the period beginning on the date of grant and
ending on the date one year prior to the date of exercise. Gain or loss from the
sale or exchange of stock acquired upon such exercise will generally be treated
as long-term capital gain or loss, provided that such sale or exchange of the
shares does not occur within either the two-year period after the date of the
granting of the option or the one-year period after the date such shares were
acquired upon exercise. Under these circumstances, no deduction will be
allowable to the Company in connection with either the grant of such options or
the issuance of shares upon exercise thereof.
If a disposition (as that term is defined in Section 424(c) of the
Code) of shares acquired pursuant to the exercise of an ISO is made within
either the two-year period after the date of granting of the option or the
one-year period after the date the shares were acquired (a "disqualifying
disposition"), the optionee will generally recognize compensation income at the
time of disposition equal to the excess of the fair market value of the shares
at the time of
18
<PAGE> 21
exercise over the option price (limited to the difference between the amount
realized by the employee on the sale of such shares and the exercise price). Any
such compensation income recognized as described in this paragraph will increase
the optionee's tax basis in his shares. If a disposition described in this
paragraph occurs in a taxable transaction, any gain in excess of compensation
income recognized on the disposition will be capital gain, and any loss will be
capital loss. Such capital gain or loss will be long-term capital gain or loss,
depending on the holding period of the shares. If an optionee recognizes
compensation income as the result of a disposition as described in this
paragraph, the Company will be entitled to a corresponding income tax deduction
for its taxable year in which or with which ends the taxable year of the
employee in which the amount of compensation income is included in such
employee's gross income. The employee will be deemed to have included such
compensation income in gross income if the Company satisfies in a timely manner
the applicable reporting requirements under Section 6041 or Section 6041A of the
Code, whichever is applicable, and the Treasury regulations thereunder.
Upon the exercise of an ISO, the excess of the fair market value of the
shares at the time of exercise over the option price will be an item of
adjustment subject to the alternative minimum tax provisions, unless the
optionee makes a disqualifying disposition of such shares as described in the
preceding paragraph.
(b) Non-ISOs
In the event that options granted under the Plan do not qualify as
ISOs, the employee will recognize compensation income upon the receipt of such
option if the option has a readily ascertainable fair market value at the time
of the grant, in the amount of the fair market value of the option. In the
opinion of the Company, the presently outstanding options did not have a readily
ascertainable fair market value at the time of their grant. If the non-ISOs do
not have a readily ascertainable fair market value at the time of their grant,
the employee will not recognize income upon grant of the non-ISO, but will
recognize compensation income upon the exercise of the non-ISO if the shares
issued pursuant to such exercise are either transferable or not subject to
substantial risk of forfeiture. The amount of the income will be measured by the
excess, if any, of the fair market value of the shares at the time of exercise
(determined without regard to any restrictions other than a restriction which,
by its terms, will never lapse) over the amount paid as the exercise price of
the non-ISO. If, however, the employee is subject to certain forfeiture
restrictions with respect to the shares received upon the exercise of the
non-ISO, then the taxable income realized by the employee will be deferred and
will be measured based on the fair market value of the shares at the time the
restrictions lapse. Gain or loss on the subsequent sale or exchange of such
shares will be capital gain or loss if the shares are a capital asset in the
hands of the employee. Such capital gain or loss will be classified as long-term
or short-term depending on the holding period. An employee may elect, pursuant
to Section 83(b) of the Code, to be taxed in the taxable year in which a non-ISO
is exercised on the difference between the fair market value of the Common Stock
on the date of exercise and the exercise price.
In the case of compensation income recognized by an employee as
described above in connection with the exercise of an option, the Company will
be entitled to a corresponding income tax deduction for its taxable year in
which or with which ends the taxable year of the employee in which the amount of
compensation income is included in such employee's gross income. The employee
will be deemed to have included such compensation income in gross income if the
Company satisfies in a timely manner the applicable reporting requirements under
Section 6041 or Section 6041A of the Code, whichever is applicable, and the
Treasury regulations thereunder.
As of April 14, 2000, the market value of the Common Stock as reported
on The Nasdaq Stock Market was $16.31 per share.
The following table provides information concerning options granted to
certain persons or groups pursuant to the Incentive Plan.
19
<PAGE> 22
1992 INCENTIVE AND NON-STATUTORY STOCK OPTION PLAN
<TABLE>
<CAPTION>
Number of Shares Underlying
Options Outstanding Exercise Price
Name and Position as of April 15, 2000 Per Share (1)
----------------- --------------------------- --------------
<S> <C> <C>
Gerald R. Szczepanski..................................... 196,572 $ 9.25
Chairman of the Board, President
and Chief Executive Officer
James F. Wimpress, Jr..................................... 57,501 10.73
Senior Vice President - Store Operations
Paula Y. Masters.......................................... 117,000 9.53
Senior Vice President - General Merchandising Manager
James A. Motley........................................... 64,750 11.61
Vice President, Chief Financial Officer and Secretary
William S. Kotch III...................................... 43,447 8.20
Vice President - Real Estate
Stephen R. Puterbaugh..................................... 41,450 10.26
Vice President - Human Resources and Loss Prevention
All Executive Officers.................................... 520,720 9.76
as a group (6 persons)
Current Non-Employee Directors............................ - -
as a group (4 persons)
All Non-Executive Officer Employees as a group............ 469,609 11.25
</TABLE>
- ---------------
(1) Exercise prices shown are weighted averages of the actual exercise
prices for stock options granted to the individuals or groups, as
applicable.
Approval of the Incentive Plan Amendment will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
C. APPROVAL OF THE AMENDMENTS TO THE EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Stock Purchase Plan is to give employees of the
Company an opportunity to acquire a proprietary interest in the Company through
the purchase of shares of Common Stock.
The Board of Directors has adopted, subject to shareholder approval,
amendments to the Stock Purchase Plan (the "Stock Purchase Plan Amendments") to
(i) increase the number of monthly offerings to 60, (ii) increase the maximum
aggregate number of shares reserved for issuance under the Stock Purchase Plan
from 60,000 to 110,000, (iii) extend the term of the Stock Purchase Plan to
March 31, 2003, (iv) remove the provision limiting each Offering to 2,500
shares, and (v) entitle the Company to withhold any necessary employment taxes
or other similar amounts with respect to the purchase or sale of shares of
Common Stock under the Stock Purchase Plan. The full text of the proposed
amendment is included in Appendix B attached to this Proxy Statement.
General. In June 1998, the Board of Directors and the Shareholders of
the Company approved the Stock Purchase Plan. The Stock Purchase Plan is
administered by the Compensation Committee. Any person who is an employee of the
Company who is scheduled to work at least 20 hours per week on a regular basis
and has completed six months' of employment with the Company is eligible to
participate in the Stock Purchase Plan. As of May 5, 2000,
20
<PAGE> 23
approximately 500 employees of the Company were eligible to participate in the
Stock Purchase Plan. Currently, the Company has reserved 60,000 shares of Common
Stock for issuance under the Stock Purchase Plan. Such shares of Common Stock
may be newly issued by the Company or may be purchased in the open market by the
Company. The Stock Purchase Plan is currently implemented by 24 monthly
offerings of the Common Stock (the "Offerings") commencing, respectively, on
April 1, 1998 and on the first day of each calendar month thereafter ending with
March 1, 2000. Each Offering shall terminate on the last day of each such month,
respectively. Common Stock will be purchased for participants in the Stock
Purchase Plan as of the last day of each Offering with the money deducted from
their paychecks during the Offering. The purchase price per share of Common
Stock will be 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 currently 2,500 shares plus any unissued shares from prior
offerings. If the aggregate stock purchase accounts to be used for the purchase
of Common Stock as of the last day of an Offering would purchase more than 2,500
shares, then the number of shares which would otherwise be purchased for each
participant will be reduced proportionately and the remaining account balance of
each participant will be distributed.
If the Stock Purchase Plan Amendments are approved, the Stock Purchase
Plan will be implemented by 60 monthly Offerings commencing, respectively, on
April 1, 1998 and ending with March of 2003. The aggregate number of shares of
Common Stock that can be issued under the Stock Purchase Plan shall increase to
110,000. In addition, the provision limiting each Offering to 2,500 shares will
be eliminated.
Payroll Deductions. A participant may elect to have payroll deductions
made under the Stock Purchase Plan for the purchase of Common Stock in an amount
not to exceed 15% of the participant's compensation. Compensation for purposes
of the Stock Purchase Plan means total cash compensation, including regular pay,
overtime pay and bonuses, and it also includes pre-tax employee contributions
under a Section 401(k) plan or non-qualified deferred compensation plan.
Contributions to the Stock Purchase Plan will be on an after-tax basis (i.e.,
such contributions are subject to federal, state and local taxes). A participant
may terminate his or her payroll deductions at any time. A participant may elect
to increase or decrease the amount of his or her payroll deductions within the
first 30 days of a quarter, but not more than once each quarter.
A stock purchase account is established for each participant in the
Stock Purchase Plan. Amounts deducted from participants' paychecks is credited
to their accounts with respect to each Offering. No interest accrues with
respect to any amounts credited to the accounts. As of the last day of each
Offering, the amount credited to a participant's stock purchase account with
respect to such Offering is used to purchase the largest number of whole shares
of Common Stock at the price as determined above. The Common Stock is purchased
directly from the Company. No brokerage or other fees are charged to
participants.
Withdrawal and Transferability. A participant may withdraw from
participation in the Stock Purchase Plan at any time by written notice to the
Company. The payroll deductions of a withdrawing participant shall cease
beginning with the next pay period. None of a participant's payroll deductions
then credited to his or her account in connection with an Offering is returned
to the participant, but is instead applied to the purchase of shares during the
appropriate Offering. A participant's withdrawal from any Offering disqualifies
the participant from again participating in the Stock Purchase Plan until the
first Offering that commences after the next January 1 or July 1. Rights to
purchase shares of Common Stock under the Stock Purchase Plan are exercisable
only by the participant and are not transferable.
Termination and Amendment. If not sooner terminated automatically
because all shares reserved under the Stock Purchase Plan have been issued and
sold, the Stock Purchase Plan will continue in effect until terminated by the
Board of Directors. The Board of Directors of the Company may amend or terminate
the Stock Purchase Plan at any time, except that certain amendments may be made
only with the approval of the shareholders of the Company.
Federal Income Tax Consequences. The following is a summary of the
federal income tax consequences to employees participating in the Stock Purchase
Plan and to the Company, based upon current provisions of the Code, the Treasury
regulations promulgated thereunder and administrative and judicial
interpretations thereof. The summary does not address the consequences under any
other applicable tax laws. The provisions of the Code, regulations thereunder
and related interpretations are complicated and their impact in any one case may
depend upon the particular circumstances relating thereto.
21
<PAGE> 24
Rights to purchase stock under the Stock Purchase Plan are referred to
in the Code as "options." A participating employee does not recognize income at
the time options are granted to such employee or when the employee exercises
such options and purchases shares of Common Stock. Under the Stock Purchase
Plan, both the grant date and the exercise date occur at the end of each
Offering for tax purposes. An employee is taxed on amounts withheld from salary
under the Stock Purchase Plan as if actually received, and the Company is
entitled to deduct a corresponding amount.
If an employee does not dispose of the shares of Common Stock purchased
pursuant to the Stock Purchase Plan within two years after the date of grant of
the options to the employee, or if the employee dies without having disposed of
such shares, such employee must include in gross income as compensation (as
ordinary income and not as capital gain) for the taxable year of disposition or
death an amount equal to the lesser of (i) the excess of the fair market value
of the shares at the time of disposition or death over the amount paid for the
shares, or (ii) the excess of the fair market value of the shares at the date of
grant of the options over the exercise price. If the amount realized upon such a
disposition by way of sale or exchange of the shares exceeds the purchase price
plus the amount, if any, included in income as compensation, such excess will be
capital gain. If the holding period for the shares is not more than one year,
the gain or loss will be short-term capital gain or loss. Short-term capital
gain is taxable at the same rates as ordinary income. If the holding period is
more than one year, the gain or loss will be long-term capital gain or loss. In
general, long-term capital gain is subject to lower maximum federal income tax
rates than ordinary income. Currently the maximum rate for long-term capital
gain on assets held for more than one year is generally 20%.
The Company is not entitled to any deduction with respect to options
granted under the Stock Purchase Plan or shares of Common Stock issued and
delivered pursuant to the exercise of such options, if the holding period
requirements are met or the employee dies prior to disposing of the shares
acquired upon exercise.
If an employee disposes of the shares of Common Stock within two years
from the date of grant of the option (an "Early Disposition"), the employee will
recognize ordinary income at the time of disposition which will equal the
excess, if any, of the fair market value of the shares on the date of exercise
over the amount paid for such shares. The Company may be required to withhold
employment and other taxes related to such ordinary income. The Company will
generally be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on disposition of such shares over the
fair market value of such shares on the date of exercise will be long-term or
short-term capital gain, depending upon the holding period for the shares. If an
employee disposes of such shares for less than his or her basis in the shares,
the difference between the amount realized and such basis will be a long-term or
short-term capital loss, depending upon the holding period for the shares.
If the Stock Purchase Plan Amendments are approved, the Company shall
be entitled to withhold in any lawful manner any employment taxes or other
similar amounts if any such taxes or amounts must be withheld or otherwise paid
by any employee upon the purchase of stock pursuant to the Stock Purchase Plan
or the subsequent sale of stock so purchased.
22
<PAGE> 25
EMPLOYEE STOCK PURCHASE PLAN
Participation in the Stock Purchase Plan is voluntary. The Company
cannot now determine the amount of shares of Common Stock that will be acquired
by participants therein or the dollar value of any such participation. The
following table sets forth information regarding shares of Common Stock
purchased during the fiscal year ended January 29, 2000 under the Stock Purchase
Plan by the individuals and groups set forth below.
<TABLE>
<CAPTION>
Aggregate
Price of the
Name and Position Number of Shares Underlying Shares(1)
----------------- ---------------- --------------------
<S> <C> <C>
Gerald R. Szczepanski........................................ 9,205 $ 7.17
Chairman of the Board, President
and Chief Executive Officer
James F. Wimpress, Jr........................................ 836 6.65
Senior Vice President - Store Operations
Paula Y. Masters............................................. -- --
Senior Vice President - General Merchandising Manager
James A. Motley.............................................. -- --
Vice President, Chief Financial Officer and Secretary
William S. Kotch III......................................... 1,202 7.20
Vice President - Real Estate
Stephen R. Puterbaugh........................................ -- --
Vice President - Human Resources and Loss Prevention
All Executive Officers as a Group (6 persons)................ 11,244 7.14
All Non-Employee Directors as a Group (4 persons)(2)......... -- --
All Non-Executive Officer Employees as a Group .............. 8,476 $ 7.63
</TABLE>
- -----------------------
(1) Calculated by averaging the option price of the shares purchased
under the Stock Purchase Plan.
(2) Not eligible for participation.
Approval of the Stock Purchase Plan Amendments will require the
affirmative vote of the holders of a majority of the Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
D. 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 February 3, 2001,
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 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.
23
<PAGE> 26
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 1999 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' 2001 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 9, 2001. Pursuant to Rule 14a-4(c)(1) under the Exchange Act,
if any shareholder proposal intended to be presented at the 2001 annual meeting
without inclusion in Gadzooks' proxy statement for such meeting is received at
Gadzooks' principal office after March 24, 2001, 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 29, 2000, AS FILED WITH THE SEC, EXCLUDING EXHIBITS, ARE AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO GADZOOKS, INC., 4121 INTERNATIONAL
PARKWAY, CARROLLTON, TEXAS 75007, ATTENTION: JAMES A. MOTLEY, SECRETARY. COPIES
OF EXHIBITS ARE AVAILABLE UPON PAYMENT OF A REASONABLE 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/ JAMES A. MOTLEY
James A. Motley
Secretary
May 11, 2000
24
<PAGE> 27
Appendix A
AMENDMENT NO. 7
TO THE GADZOOKS, INC.
1992 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
The Gadzooks, Inc. 1992 Incentive and Nonstatutory Stock Option Plan,
as amended (the "Plan") is hereby amended as follows, effective March 30, 2000:
1. The first paragraph of Section 3 of the Plan is hereby amended
in its entirety to read as follows:
3. Stock Subject to the Plan. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of shares
which may be optioned and sold under the Plan is the excess of
2,100,000 shares of Common Stock over the number of shares (as
appropriately adjusted pursuant to Section 11 hereof) that
have, prior to March 30, 2000, been optioned, sold or
otherwise properly subtracted from the maximum number of
shares available under the Plan. The Shares may be authorized,
but unissued, or reacquired Common Stock.
2. Section 13(a)(i) of the Plan is hereby amended in its entirety
to read as follows:
(i) An increase in the number of Shares subject to the Plan
above 2,100,000 Shares, other than in connection with an
adjustment under Section 11 of the Plan;
In witness whereof, the Company has caused its duly authorized officer
to execute this Amendment No. 7 as of the 30th day of March, 2000.
GADZOOKS, INC.
By: /s/ JAMES A. MOTLEY
---------------------------------
Title: Vice President, Chief Financial
Officer and Secretary
---------------------------------
<PAGE> 28
Appendix B
AMENDMENT NO. 1
TO THE GADZOOKS., INC.
EMPLOYEE STOCK PURCHASE PLAN
The Gadzooks, Inc. Employee Stock Purchase Plan (the "Plan") is hereby
amended as follows, effective March 30, 2000:
1. Section 4.1 of the Plan is hereby amended to read as follows:
4.1 Annual Offerings. The Plan will be implemented by 60
monthly offerings of the Company's Common Stock (the
"Offerings") commencing respectively, on April 1, 1998 and the
first day of each calendar month thereafter, ending with March
of 2003. Each Offering shall terminate on the last day of each
such month respectively. Effective March 30, 2000, the
aggregate number of shares that may be issued under the Plan
is 110,000 minus the number of shares (subject to adjustment
pursuant to Section 12.3 hereof) that have been issued under
the Plan prior to March 30, 2000. The commencement date of
each Offering ("Offering Commencement Date") shall be the
first day of each calendar month in the period beginning
April 1, 1998 and ending March 31, 2003. The termination date
of each Offering ("Offering Termination Date") shall be the
last day of each such calendar month.
2. The first sentence of Section 10.1 of the Plan is hereby
amended to read as follows:
The maximum number of shares which shall be reserved for
issuance under the Plan, subject to adjustment upon changes in
capitalization of the Company as provided in Section 12.3
hereof shall be 110,000 shares minus the number of shares (as
appropriately adjusted pursuant to Section 12.3 hereof) that
have been issued under the Plan prior to March 30, 2000.
3. A new section 12.10 is added to the Plan to read as follows:
12.10 Withholding. In the event any employment taxes or other
similar amounts must be withheld or otherwise paid by any
Employee upon the purchase of stock pursuant to the Plan or
the subsequent sale of stock so purchased, the Company shall
be entitled to withhold any such tax or amounts in any manner
permitted by law.
4. Section 12.5 of the Plan shall be amended by the addition at
the end thereof of the following language:
Amendment No. 1 to the Plan shall become effective as of March
30, 2000, subject to approval by the holders of the majority
of the Common Stock on or before December 31, 2000. If
Amendment No. 1 to the Plan is not so approved, the Amendment
shall not become effective.
5. In all other respects, the Plan shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the foregoing Amendment is hereby duly executed by
the corporate officer signing below as of March 30, 2000.
GADZOOKS, INC.
By: /s/ JAMES A. MOTLEY
---------------------------------
Title: Vice President, Chief Financial
Officer and Secretary
---------------------------------
<PAGE> 29
- --------------------------------------------------------------------------------
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, James A.
Motley 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 2, 2000, at the
annual meeting of stockholders to be held on June 15, 2000 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, 2, 3 AND 4.
(CONTINUED AND TO BE DATED AND SIGNED ON THE REVERSE SIDE.)
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
2
<PAGE> 30
Please mark your
votes as indicated [X]
in this example
- --------------------------------------------------------------------------------
A VOTE "FOR" PROPOSALS 1 THROUGH 4 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
ITEM 1. Election of directors
WITHHOLD
FOR AUTHORITY *EXCEPTIONS
the nominees to vote for all nominees
listed to the right listed to the right
[ ] [ ] [ ]
NOMINEES: Gerald R. Szczepanski, Ron G. Stegall
(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 2. Proposal to approve the amendment to the 1992 Incentive and
Nonstatutory Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 3. Proposal to approve the amendment to the Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 4. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors of the corporation.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 5. 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 MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SIGNATURE SIGNATURE DATE
------------------------ --------------------- --------
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. 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.
- --------------------------------------------------------------------------------
o FOLD AND DETACH HERE o
3
