Piercing Pagoda, Inc.
P.O. Box 25007
Lehigh Valley, PA 18002-5007
PROXY STATEMENT
for
Annual Meeting of Stockholders
September 15, 1999
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Piercing Pagoda, Inc., a Delaware
corporation (the "Company"), for use at the Company's Annual Meeting of
Stockholders (the "Meeting"), which will be held on Wednesday, September 15,
1999, at 10:00 a.m. at The Holiday Inn, Gateway Conference Center, Routes 512 &
22 in Bethlehem, Pennsylvania and any adjournment or postponement thereof. This
proxy statement, the foregoing notice and the enclosed proxy are first being
sent to stockholders of the Company on or about August 2, 1999.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice and does not know of
anyone else who intends to do so. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If the
enclosed proxy is properly executed and returned prior to voting at the Meeting,
the shares represented thereby will be voted in accordance with the instructions
marked thereon. In the absence of instructions, the shares will be voted "FOR"
the nominee of the Board of Directors in the election of one director whose term
of office will extend until the 2002 Annual Meeting of Stockholders and until
his successor is duly elected and qualified, "FOR" amendment of the Company's
1994 Stock Option Plan to increase the number of shares available thereunder,
and "FOR" the approval of KPMG LLP as the Company's independent auditors for the
current fiscal year ending March 31, 2000.
Any proxy may be revoked at any time prior to its exercise by notifying
the Secretary in writing, by delivering a duly executed proxy bearing a later
date, or by attending the Meeting and voting in person.
<PAGE>
VOTING SECURITIES AND SECURITY OWNERSHIP
Quorum and Voting Requirements
At the close of business on July 19, 1999, the record date for the
Meeting, there were 9,147,825 shares of the Company's Common Stock ("Common
Stock") outstanding. There is no other class of voting securities outstanding.
Only stockholders of record at the close of business on that date are entitled
to vote at the Meeting. The presence at the Meeting, in person or by a proxy
relating to any matter to be acted upon at the Meeting, of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum for the
Meeting. Each outstanding share is entitled to one vote on all matters. For
purposes of the quorum and the discussion below regarding the vote necessary to
take stockholder action, stockholders of record who are present at the meeting
in person or by proxy and who abstain, including brokers holding customers'
shares of record who cause abstentions to be recorded at the meeting, are
considered stockholders who are present and entitled to vote and they count
toward the quorum. In the election of the director, stockholders will not have
cumulative voting rights.
Brokers holding shares of record for customers generally are not entitled
to vote on certain matters unless they receive voting instructions from their
customers. As used herein, "uninstructed shares" means shares held by a broker
who has not received instructions from its customers on such matters and the
broker has so notified the Company on a proxy form in accordance with industry
practice or has otherwise advised the Company that it lacks voting authority. As
used herein, "broker non-votes" means the votes that could have been cast on the
matter in question by brokers with respect to uninstructed shares if the brokers
had received their customers' instructions.
Election of Directors: Directors are elected by a plurality and the
nominee who receives the most votes will be elected. Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election.
Approval of Amendments to the Company's 1994 Stock Option Plan: To be
approved, the amendments to the Company's 1994 Stock Option Plan to increase the
number of shares available thereunder must receive the affirmative vote of the
majority of the shares present in person or by proxy at the Meeting and entitled
to vote. Uninstructed shares are not entitled to vote on this matter, and
therefore broker non-votes do not affect the outcome. Abstentions have the
effect of negative votes.
Approval of Auditors: To be approved, this matter must receive the
affirmative vote of the majority of the shares present in person or by proxy at
the Meeting and entitled to vote. Uninstructed shares are entitled to vote on
this matter. Therefore, abstentions and broker non-votes have the effect of
negative votes.
<PAGE>
Securities Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of July 19, 1999
(except as otherwise noted in footnotes (3), (4), and (5)) by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each director of the Company, (iii) each Named
Officer (as hereinafter defined) and (iv) all directors and Named Officers of
the Company as a group. Information with respect to 5% owners is based solely on
public filings.
Amount and Nature Percent
Beneficial Owner of Beneficial of
Ownership(1) Common
Stock(1)
37.9
Richard H. Penske(2).... 3,474,306
Piercing Pagoda, Inc.
P.O. Box 25007
Lehigh Valley,PA 18002-5007
FMR Corp. (3)........... 911,300 10.0
Capital Research and
Management Company
SMALLCAP World Fund,
Inc.(4)............ 502,500 5.5
Emerald Asset
Management(5)........... 483,783 5.3
John F. Eureyecko....... 152,755 1.7
Barry R. Clauser(6)..... 117,345 1.3
Sharon J. Zondag........ 90,402 1.0
Brandon R. Lehman....... 33,466 *
Alan R. Hoefer(7)....... 96,834 1.1
Mark A. Randol.......... 40,236 *
All directors and Named 4,005,344 42.5
Officers as a
group (7
persons)(2)(6)(7).......
- ----------
* Less than 1%.
(1)Each stockholder possesses sole voting and investment power with respect to
the shares listed, except as otherwise noted. Shares of Common Stock subject
to options that are exercisable within 60 days of this proxy statement are
deemed beneficially owned by the person holding such options for the purpose
of computing the percentage of ownership of such person, but are not treated
as outstanding for the purpose of computing the percentage of any other
person. Accordingly, the information in the above table includes the
following number of shares of Common Stock underlying options held by the
following individuals, and all directors and Named Officers as a group, when
computing the percentage ownership of such individual or group: Mr. Richard
H. Penske, 15,000 shares; Mr. John F. Eureyecko, 105,000 shares; Mr. Barry R.
Clauser and Ms. Sharon J. Zondag, 55,498 shares each; Mr. Brandon R. Lehman,
15,600 shares; Mr. Alan R. Hoefer, 15,000 shares; Mr. Mark A. Randol, 12,000
shares; and all directors and Named Officers as a group, 273,596 shares.
(2)Includes 600,000 shares of Common Stock held in two annuity trusts of which
Mr. Penske's wife is a beneficiary and an aggregate of 702,798 shares of
Common Stock held in two annuity trusts of which Mr. Penske is a beneficiary
(collectively, the "Annuity Trusts"). Victoria L. Penske and Crislyn A.
Penske, Mr. Penske's two oldest children, are the trustees of the Annuity
Trusts. Also includes 113,706 shares of Common Stock held by Mr. Penske's
wife and an aggregate of 188,800 shares of Common Stock divided equally among
four trusts, one for the benefit of each of Mr. Penske's four children, of
which Victoria L. Penske and Crislyn A. Penske are the trustees. Mr. Penske
disclaims beneficial ownership as to all of such shares.
<PAGE>
(3)Based solely on the Schedule 13G, dated February 12, 1999, filed with the
Securities and Exchange Commission (the "Commission") by FMR Corp. ("FMR").
The Schedule 13G reports that each of Edward C. Johnson 3d (Chairman and
12.0% shareholder of FMR) and FMR (through its wholly owned subsidiary,
Fidelity Management & Research Company ("Fidelity"), investment adviser to
various investment companies (the "Funds") (including Fidelity Low Priced
Stock Fund, which directly holds 910,000 of the shares of Common Stock listed
in the table above (the "FMR Shares")) has sole power to dispose of the FMR
Shares. The Schedule 13G also reports that neither Mr. Johnson nor FMR has
sole power to vote the FMR Shares, which power resides with the Funds' Boards
of Trustees. Fidelity votes the FMR Shares under written guidelines
established by such Boards. The Schedule 13G reports the addresses of FMR,
Fidelity and the Funds as 82 Devonshire Street, Boston, Massachusetts 02109.
(4)Based solely on the Schedule 13G, dated February 11, 1999, filed with the
Commission by Capital Research and Management Company ("Capital") and
SMALLCAP World Fund, Inc. ("SMALLCAP"). The Schedule 13G reports that Capital
has sole power to dispose of the shares of Common Stock listed in the table
above (the "Capital Shares") and that SMALLCAP has sole power to vote the
Capital Shares. The Schedule 13G reports the addresses of Capital and
SMALLCAP as 333 South Hope Street, Los Angeles, CA 90071.
(5)Based solely on information provided by Emerald Advisers, Inc. ("Emerald).
As of June 30, 1999, Emerald held the number of shares of Common Stock listed
in the table above. Emerald has sole power to dispose of all of such shares,
and has sole power to vote 315, 816 of such shares. Emerald does not share
voting power with respect to any of such shares. The address of Emerald is
1857 William Penn Way, P.O. Box 10666, Lancaster, PA 17065.
(6)Includes 300 shares of Common Stock held by Mr. Clauser as custodian for his
children and seven shares of Common Stock held by his wife, as to all of
which shares he disclaims beneficial ownership.
(7)Includes 10,000 shares of Common Stock held by a trust for the benefit of
one of Mr. Hoefer's children of which he is the trustee, and 450 shares of
Common Stock held by his wife, as to all of which shares he disclaims
beneficial ownership.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations thereunder, require the Company's officers
and directors and persons who own more than ten percent of a registered class
of the Company's equity securities (collectively, the "reporting persons") to
file reports of ownership and changes in ownership with the Commission and to
furnish the Company with copies of these reports. Based on the Company's review
of the copies of these reports received by it, and written representations
received from reporting persons, the Company believes that all filings required
to be made by the reporting persons during the 1999 fiscal year and prior
fiscal years were made on a timely basis, except that: Sharon J. Zondag did not
file on a timely basis a report on Form 4 with respect the purchase of 5,000
shares in September of 1998; and each of Alan R. Hoefer and Mark A. Randol did
not file on a timely basis a report on Form 5 with respect to the acquisition
of options to purchase 3,000 shares of Common Stock in June of 1998.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTOR
At the Meeting, the stockholders will elect one director to hold office
until the 2002 Annual Meeting of Stockholders and until his successor has been
duly elected and qualified. The Company's Board of Directors is divided into
three classes serving staggered three-year terms, with the term of one class of
directors expiring each year. The director whose term of office expires at the
Meeting is John F. Eureyecko
The Board of Directors has nominated Mr. Eureyecko to serve as director
until the 2002 Annual Meeting of Stockholders and until his successor has been
duly elected and qualified. Mr. Eureyecko has indicated a willingness to
continue to serve as director. Should he become unavailable to accept election
as a director, the persons named in the enclosed proxy will vote the shares
which such proxy represents for the election of such other person as the Board
of Directors may recommend. Unless contrary instructions are given on the proxy,
the shares represented by a properly executed proxy will be voted "FOR" the
election of Mr. Eureyecko. A plurality of the votes cast is required for the
election of the director.
The nominee for election as the director to be elected at the Meeting and
the directors whose terms of office continue after the Meeting, together with
certain information about them, are set forth below:
Term Positions
Name Age Expires with Company
John F.
Eureyecko....... 50 1999 President, Chief
Operating Officer,
Secretary and Director
Richard H.
Penske.......... 56 2000 Chairman of the Board
and Chief Executive
Officer
Alan R. Hoefer.. 65 2000 Director +
Mark A. Randol.. 64 2001 Director +
+ Member of the Audit and Compensation Committees.
John F. Eureyecko joined the Company in October 1991 and has served as
President and Chief Operating Officer since June 1996. Mr. Eureyecko had
previously served as Executive Vice President from January 1992 to June 1996 and
as Chief Financial Officer from February 1994 to June 1996. Mr. Eureyecko was
elected as Secretary in January 1992 and as a director in March 1994. Mr.
Eureyecko joined the Company with 18 years experience at Triangle Building
Supplies and Lumber Co., a building materials retailer, where he last served as
Senior Vice President and General Manager.
Richard H. Penske has served the Company and its predecessor in
various capacities for more than 25 years. Mr. Penske served as
President of the Company from 1980 to June 1996, and has served
as the Chief Executive Officer since 1986. Mr. Penske has served
as a director of the Company since 1978.
Alan R. Hoefer has served as a director of the Company since March 1994.
Since August 1988, Mr. Hoefer has been the Managing General Partner of Alan
Hoefer & Co., a private investment banking firm.
Mark A. Randol has served as a director of the Company since
March 1994. Mr. Randol is currently self-employed as a
commercial real estate consultant. From 1979 to March 1998, Mr.
Randol served as the President of Forest City Management, Inc., a
real estate development company.
<PAGE>
Meetings and Committees of the Board of Directors
The Board of Directors has an Audit Committee and a Compensation
Committee. Messrs. Hoefer and Randol serve as members of both the Audit
Committee and the Compensation Committee. The functions of the Audit Committee,
which held two meetings during fiscal 1999, include reviewing the scope and
results of the annual audit, internal accounting procedures and certain other
questions of accounting policy. The functions of the Compensation Committee,
which acted by unanimous consent in writing on eight occasions during fiscal
1999, include considering and determining all compensation matters relating to
the Company's executive officers.
The Board of Directors held two meetings, and acted by unanimous consent in
writing on eight occasions, during fiscal 1999. Each director attended at least
75% of the aggregate number of meetings of the Board of Directors and committees
on which the director served.
Compensation of Directors
Members of the Board of Directors who are not employees of the Company are
compensated at the annual rate of $8,000. Non-employee directors will also
receive $1,000 for each meeting of the Board of Directors which they attend and,
if not held in conjunction with a Board meeting, a fee of $1,000 for each
meeting of a committee of the Board of Directors which they attend. The Company
also reimburses all directors for their expenses in connection with their
activities as directors of the Company. Directors who are also employees of the
Company do not receive any compensation for serving on the Board of Directors.
Pursuant to the Company's 1994 Stock Option Plan, each director who is a member
of the Compensation Committee also receives an annual grant of ten year options
to purchase 3,000 shares of Common Stock at the fair market value on the date of
grant, becoming exercisable on the first anniversary of the date of grant.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE NOMINEE FOR DIRECTOR
PROPOSAL TWO
amendment of the company's 1994 STOCK OPTION PLAN IN ORDER TO
INCREASE THE NUMBER OF SHARES AVAILABLE THEREUNDER
On May 18, 1994, the Board of Directors of the Company adopted, and the
stockholders of the Company approved, the Piercing Pagoda, Inc. 1994 Stock
Option Plan (the "Plan"), making 450,000 shares of stock in the Company
available for grants of options, subject to the terms and conditions set forth
in the Plan. Amendments to the Plan were adopted by the Board of Directors of
the Company in May 1997, and were approved by the Company's stockholders in July
1997. These amendments, among other things, increased the aggregate number of
shares available under the Plan to 600,000. In August 1998, the Company effected
a 3-for-2 stock split by means of a stock dividend. The stock split resulted in
the aggregate number of shares subject to the Plan being increased to 900,000.
Amendments to the Plan were adopted by the Board of Directors in May and
July 1999, subject to approval by the Company's stockholders, increasing the
aggregate number of shares available under the Company's 1994 Stock Option Plan
to 1,100,000. The affirmative vote of the majority of the shares present in
person or by proxy at the Meeting and entitled to vote is required to approve
the amendments to the Plan. Unless contrary instructions are given on the proxy,
the shares represented by a properly executed proxy will be voted "FOR" the
proposal to amend the Company's 1994 Stock Option Plan in order to increase the
number of shares available thereunder. If not so approved, the Plan shall
continue in effect as though no amendment had been adopted, and any actions
taken dependent on the adoption of any such amendment will be null and void.
<PAGE>
The Plan, as amended, is intended to recognize the contributions made to
the Company by employees, members of the Board of Directors and consultants and
advisors, to provide such persons with additional incentive to devote themselves
to the future success of the Company, and to improve the ability of the Company
to attract, retain and motivate individuals upon whom the Company's sustained
growth and financial success depend, by providing such persons with an
opportunity to acquire or increase their proprietary interest in the Company
through receipt of options to acquire the Company's Common Stock ("Options").
Options granted under the Plan to employees may be "incentive stock options"
("ISOs") within the meaning of Code Section 422(b), or may be Options not
intended to be ISOs ("non-qualified stock options"). Options granted to
individuals who are not employees of the Company will be non-qualified stock
options.
When used in this description of the Plan, the term "Company" also
includes any affiliated corporation (an "Affiliate") whose employees are
permitted, under the applicable provisions of the Code, to participate in the
Plan on the same basis as employees of Piercing Pagoda, Inc.
The key provisions of the Plan, as amended, are as follows:
1. Number of Shares. The aggregate maximum number of shares of Common Stock for
which Options may be granted under the Plan is 1,100,000 (taking into account
all Options previously granted that have not terminated or expired without
having been exercised), subject to adjustment in the event there is a
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination or exchange of shares or dividends payable in
Common Stock effected without receipt of consideration by the Company.
2. Administration. The Plan will be administered by the Board of Directors of
the Company, unless the Board of Directors designates a committee or
committees composed of two or more of its members to operate and administer
the Plan in its stead. If that is done, the Board of Directors may designate
a committee which consists exclusively of two or more of its members who are,
or are expected to be, qualified as both "outside directors" (i.e., directors
who qualify as "outside directors" under the rules applicable to the
"performance-based" compensation exception to the limitations on deduction of
certain compensation in excess of $1 million imposed by Section 162(m) of the
Code), and as "non-employee directors" (i.e., directors who qualify as
"non-employee directors" under Rule 16b-3 as promulgated by the Securities
Exchange Commission in connection with the conditions under which certain
transactions may be exempt from Section 16 of the Securities Exchange Act of
1934). Any committee designated by the Board of Directors for this purpose,
and the Board of Directors itself in its administrative capacity with respect
to the Plan, is referred to as the "Committee." If a separate committee of
"outside directors" or of directors who are expected to be "outside
directors" is established, that committee will be referred to as the "Outside
Director Committee." The members of the Outside Director Committee will
receive Options under the Plan on the basis of a set formula. These Options
will be administered by the Board of Directors other than the members of the
Outside Director Committee. Currently, the Plan's administrative committee,
previously known as the Disinterested Director Committee, is designated as
the Outside Director Committee, the members of which are currently the
members of the Compensation Committee.
3. Eligibility. All employees, members of the Board of Directors and consultants
and advisors to the Company are eligible to receive Options under the Plan.
Members of the Outside Director Committee, however, are only eligible to
receive Options granted under the formula provisions of the Plan, as
explained below. With respect to all other eligible individuals, the
Committee determines whether an individual is to receive an Option or
Options. On July 19, 1999, approximately 2,282 employees and two non-employee
members of the Board of Directors of the Company were eligible to receive
Options under the Plan.
<PAGE>
4. Term of the Plan. No Option may be granted under the Plan after May 17, 2004.
5. Number of Option Grants. Each grant of an Option under the Plan will be set
forth in an Option document that will specify the number of shares subject to
the Option. An optionee may receive more than one Option and may be granted
Options which are ISOs, non-qualified stock options or a combination thereof.
In no event, however, will Options to acquire more than 100,000 shares of the
Company's Common Stock be granted to any individual employee during any one
calendar year.
6. Term of Options. All Options, other than Options automatically granted to
members of the Outside Director Committee, terminate on the earliest of: (a)
the expiration of the term specified in the Option grant document (which, in
the case of ISOs, can not be more than ten years from the date of grant), (b)
one year after the optionee's employment terminates due to death or
disability, or three months after the optionee's termination of employment
for any other reason, (c) a finding by the Committee that the optionee has
breached his employment or service contract with the Company or an affiliate,
or has been engaged in disloyalty to the Company or its affiliates, (d) the
date, if any, set by the Board of Directors as an accelerated expiration date
in the event of the liquidation or dissolution of the Company, or (e) the
occurrence of any other event the Committee specifies in the Option document.
Notwithstanding the foregoing, the Committee has the discretion to extend the
period during which an Option may be exercised to a date no later than the
option term specified in the Option document (with the consent of the
optionee if such a change would convert an ISO into a non-qualified stock
option). The time that an Option terminates following the termination of the
optionee's service or employment may, however, be varied from the times noted
above if alternative termination dates are specified in the Option document.
7. Option Exercise Price. The option exercise price for non-qualified stock
options, other than Options automatically granted to members of the Outside
Director Committee, will be equal to, or greater than the fair market value
of the shares subject to the Option determined on the date of grant. On July
19, 1999, the last reported sale price of the Company's Common Stock on the
Nasdaq National Market was $15.25.
8. Special ISO Rules for Certain Shareholders. If an ISO is granted to an
optionee who then owns, directly or by attribution under the Code, shares
possessing more than 10% of the total combined voting power of all classes of
shares of the Company, the term of the Option will not exceed five years and
the option price will be at least 110% of the fair market value of the shares
on the date that the Option is granted.
9. Payment. An Option holder may pay for shares in cash, certified or cashier's
check, or by such mode of payment as the Committee may approve, including
payment through a broker and payment in whole or in part in shares of the
Company's Common Stock, based on the fair market value of such Common Stock
at the time of payment.
10.Option Documents; Restriction on Transferability. All Options will be
evidenced by a document containing provisions consistent with the Plan and
such other provisions as the Committee deems appropriate. No Option granted
under the Plan may be transferred, except by will, the laws of descent and
distribution or, in the case of a non-qualified stock option, pursuant to a
"qualified domestic relations order," within the meaning of the Code or in
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
11.Provisions Relating to a "Change of Control" of the Company. Notwithstanding
any other provision of the Plan, in the event of a "Change of Control" of the
Company, all outstanding Options held by optionees who are either employees
or members of the Board of Directors at the time there is a Change of Control
will become automatically fully vested. In addition, the Committee may take
whatever action it deems necessary or desirable with respect to outstanding
Options (other than Options granted automatically to non-employee directors),
including accelerating the expiration of outstanding Options.
<PAGE>
A "Change of Control" occurs under the Plan: (a) on the date the
Company's stockholders (or the Board of Directors, if stockholder action is
not required) approve a plan or other arrangement for the dissolution or
liquidation of the Company, (b) on the date the Company's stockholders (or
the Board of Directors, if stockholder action is not required) approve an
agreement to sell or dispose of substantially all of the Company's assets,
(c) on the date the Company's stockholders (or the Board of Directors, if
stockholder action is not required) and the stockholders (or the board of
directors) of another corporation have approved a definitive agreement to
merge or consolidate the Company with or into the other corporation (except
where the Company's stockholders immediately prior to the transaction will
hold a majority of common stock of the surviving corporation and a majority
of the voting power of the surviving corporation's voting securities
immediately after the merger or consolidation transaction, held in the same
proportion as the Company's Common Stock was held immediately prior to the
transaction), (d) on the date any entity, person or group (other than the
Company, any of its subsidiaries, any employee benefit plan sponsored or
maintained by the Company or any of its subsidiaries, Richard H. Penske, his
family members or trusts for his family members) comes to have beneficial
ownership of more than fifty percent of the Company's Common Stock or comes
to have control over more than fifty percent of the voting power of the
Company's Common Stock, or (e) on the first day after the original effective
date of the Plan when a majority of the members of the Board of Directors
have been directors for less than two years (unless the nomination for
election of those directors was approved by a vote of at least two-thirds of
the members of the Board of Directors then still in office who were members
at the beginning of the two year period).
12.Provisions Relating to Automatic Grants to Directors. Under the Plan, each
member of the Outside Director Committee on each June 1 (or on the
anniversary of the date the director first became a member of the Outside
Director Committee, if that is a different date) is automatically granted an
Option to purchase 3,000 shares of the Company's Common Stock (an "Outside
Director Option"). The exercise price for the Outside Director Options is the
fair market value of the underlying shares as of the date of grant. The
Outside Director Options become fully exercisable on the first anniversary of
the date of grant, provided the optionee continues to serve on the Board of
Directors as of that date. The Outside Director Options have a ten year term,
but will terminate one year following the optionee's death or disability, or
three months following the termination of the optionee's service as a member
of the Board of Directors for any other reason. Outside Director Options that
are not exercisable when the optionee ceases to serve as a member of the
Board of Director will terminate as of the date of the optionee's termination
of service on the Board of Directors.
13.Amendments to Option Documents and the Plan. Subject to the provisions of
the Plan, the Committee may amend an Option document (other than the Outside
Director Options), subject to the consent of the Option holder if the
amendment is not favorable and is not being made pursuant to provisions of
the Plan relating to a "Change of Control" of the Company. The Board of
Directors may amend the Plan from time to time in such manner as it may deem
advisable. Nevertheless, the Board of Directors may not, without obtaining
shareholder approval within twelve months before or after such action, change
the class of individuals eligible to receive an Option or increase the
maximum number of shares as to which Options may be granted. In addition,
provisions of the Plan relating to the Outside Director Options that
determine (i) which directors will be granted Options; (ii) the number of
shares subject to such Options; (iii) the option exercise price of such
Options; and (iv) the timing of grants of Options may not be amended more
than once every six months, other than to comport with changes in the Code or
ERISA.
14.Tax Aspects of the Plan. The following discussion is intended to summarize
briefly the general principles of federal income tax law applicable to
Options granted under the Plan as of the date hereof.
Taxation of ISOs. A recipient of an ISO will not recognize regular taxable
income upon either the grant or exercise of the ISO. The Option holder will
recognize long-term capital gain or loss on a disposition of the shares acquired
upon exercise of an ISO, provided the Option holder does not dispose of those
shares within two years from the date the ISO was granted or within one year
after the shares were transferred to such Option holder. Currently, for regular
federal income tax purposes, long-term capital gain is taxed at a maximum rate
of 28%, while ordinary income may be subject to a maximum rate of 39.6%. If the
Option holder satisfies both of the foregoing holding periods, then the Company
will not be allowed a deduction by reason of the grant or exercise of an ISO.
As a general rule, if the Option holder disposes of the shares acquired
through the exercise of an ISO before satisfying both holding period
requirements (a "disqualifying disposition"), the gain recognized by the Option
holder on the disqualifying disposition will be taxed as ordinary income to the
extent of the difference between (a) the lesser of the fair market value of the
shares on the date of exercise or the amount received for the shares in the
disqualifying disposition, and (b) the adjusted basis of the shares, and the
Company will be entitled to a deduction in that amount. The gain (if any) in
excess of the amount recognized as ordinary income on a disqualifying
disposition will be long-term or short-term capital gain, depending on the
length of time the Option holder held the shares prior to the disposition.
The amount by which the fair market value of a share at the time of
exercise exceeds the option exercise price will be included in the computation
of such Option holder's "alternative minimum taxable income" in the year the
Option holder exercises the ISO. Currently, the maximum alternative minimum tax
rate is 28%. If an Option holder pays alternative minimum tax with respect to
the exercise of an ISO, then the amount of such tax paid will be allowed as a
credit against regular tax liability in subsequent years. The Option holder's
basis in the shares for purposes of the alternative minimum tax will be adjusted
when income from a disposition of the shares is included in alternative minimum
taxable income.
Taxation of Non-qualified Stock Options. A recipient of a non-qualified
stock option will not recognize taxable income at the time of grant, and the
Company will not be allowed a deduction by reason of the grant. Such an Option
holder will generally recognize ordinary income in the taxable year in which the
Option holder exercises the non-qualified stock option in an amount equal to the
excess of the fair market value of the shares received upon exercise at the time
of exercise of such Options over the option exercise price of the Option. The
Company will, subject to various limitations, be allowed a deduction in the same
amount. Upon disposition of the shares subject to the Option, an Option holder
will recognize long-term or short-term capital gain or loss, depending upon the
length of time the shares were held prior to disposition, equal to the
difference between the amount realized on disposition and the Option holder's
basis in the share (which ordinarily would be the fair market value of the share
on the date the Option was exercised).
Withholding. Whenever the Company would otherwise transfer a share of
Company Common Stock under the terms of the Plan, the Company has the right to
require the recipient to make available sufficient funds to satisfy all
applicable federal, state and local withholding tax requirements as a condition
to the transfer, or to take whatever other action the Company deems necessary
with respect to its tax liabilities.
Deductibility of Executive Compensation Under the Million Dollar Cap
Provisions of the Internal Revenue Code. Section 162(m) of the Code sets limits
on the deductibility of compensation in excess of $1,000,000 paid by publicly
held companies to certain employees (the "million dollar cap"). The IRS has also
issued Treasury Regulations which provide rules for the application of the
"million dollar cap" deduction limitations. Income which is treated as
"performance-based compensation" under these rules will not be subject to the
limitation on deductibility imposed by Code Section 162(m). In order for income
which is recognized as ordinary compensation income on the exercise of a
non-qualified stock option to be treated as "performance-based" compensation
under these rules (i.e., not subject to the deduction limitations of the
"million dollar cap"), the non-qualified stock option must be granted under a
plan which complies in form with certain rules, the plan must be administered
consistent with those rules, and the non-qualified stock option must meet
certain requirements. The Plan and the non-qualified stock options comply in
form with the applicable "performance-based compensation" rules. It is the
intention of the Board of Directors to cause the Plan to be administered by
"outside directors" consistent with the rules applicable to plan administration
to the extent that is possible and to the extent other considerations do not
cause the Board of Directors to conclude that such compliance with the
administrative rules is not in the best interests of the Company. It is,
therefore, anticipated that ordinary compensation income attributable to
non-qualified stock options granted under the Plan, as amended, generally will
be treated as "performance-based" compensation exempt from the "million dollar
cap" rules unless circumstances at the time of any such grant cause the Board of
Directors to determine that compliance with the applicable requirements was not
in the best interests of the Company. The Board of Directors also anticipates
that it will, in such event, take such steps as it deems appropriate in order to
avoid any detrimental impact of the "million dollar cap."
<PAGE>
On April 1, April 9, June 1 and July 1, 1999, Options to acquire an
aggregate of 87,598 shares of Common Stock were granted to certain employees and
directors of the Company. These Options were issued from the 200,000 share
increase in the number of shares authorized under the Plan, which is being
presented for shareholder approval. The following table sets forth the number of
such Options, which as of July 19, 1999, had been granted to: (i) each of the
Named Officers, (ii) all current executive officers as a group, (iii) all
current directors who are not executive officers, as a group, (iv) each nominee
for election as a director, (v) all employees including current officers who are
not executive officers, as a group, and (vi) each person who has received five
percent or more of the Options issued from the increase in the number of shares
available under the Plan. As of July 19, 1999, none of such Options were issued
to any associate of the directors, executive officers or nominees listed in the
table.
Piercing Pagoda, Inc. 1994 Stock Option Plan
Number
of
Name and Principal Position Options
--------------------------- -------
Richard H. Penske, Chief Executive Officer.......... 5,000
John F. Eureyecko, President, nominee for election
as a director, and five percent recipient........... 10,000
Sharon J. Zondag, Senior Vice President -- Store
Operations.......................................... 5,000
Barry R. Clauser, Senior Vice President --
Merchandise Operations.............................. 5,000
Brandon Lehman, Treasurer........................... 2,000
Gil Hollander, five percent recipient............... 15,398
All current executive officers, as a group.......... 27,000
All current directors who are not executive
officers, as a group................................ 6,000
All employees, including all current officers who
are not executive officers, as a group.............. 54,598
It cannot be determined to whom and in what amounts the remainder of such
Options will be issued in the future.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE PROPOSAL TO
amend the company's 1994 STOCK
OPTION PLAN IN ORDER TO INCREASE
THE NUMBER OF SHARES AVAILABLE THEREUNDER
PROPOSAL THREE
APPROVAL OF THE COMPANY'S INDEPENDENT AUDITORS
The Company's Board of Directors recommends that the stockholders consider
and approve a proposal to select KPMG LLP, which served as the Company's
independent public auditors for the last fiscal year, to serve as the Company's
independent public auditors for the current fiscal year. If the stockholders
fail to approve the selection of such auditors, the Board of Directors will
reconsider the selection.
A representative of KPMG LLP is expected to be present at the Meeting.
Such representative will have the opportunity to make a statement if he desires
to do so and will be available to respond to appropriate questions of
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" THE PROPOSAL TO APPROVE
KPMG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during fiscal 1997, fiscal 1998 and fiscal 1999 for the Chief
Executive Officer of the Company and the other executive officers of the Company
whose total annual salary, bonus and other compensation for fiscal 1999 exceeded
$100,000 (the "Named Officers"):
<TABLE>
<CAPTION>
Long-Term
Compensation
Shares
Name and Principal Annual Compensation Underlying All Other
Position Fiscal Year Salary Bonus Options Compensation
<S> <C> <C> <C> <C> <C>
Richard H. Penske...... 1999 $ 277,500 -0- -0- $46,618(1)
Chief Executive 1998 199,235 $ 100,000 25,000 51,396(1)
Officer 1997 181,491 90,000 -0- 50,323(1)
John F. Eureyecko...... 1999 $ 285,534 $ 130,000 -0- $ 2,082(2)
President 1998 222,057 105,000 25,000 7,255(2)
1997 180,498 88,000 50,000 5,139(2)
Sharon J. Zondag....... 1999 $ 148,586 $55,000 -0- $ 3,744(2)
Senior Vice 1998 128,050 45,000 15,000 5,405(2)
President-- 1997 113,243 35,000 10,000 4,070(2)
Store Operations
Barry R. Clauser....... 1999 $ 148,470 $50,000 -0- $ 3,622(2)
Senior Vice 1998 128,495 38,000 15,000 5,247(2)
President-- 1997 113,158 30,000 10,000 3,907(2)
Merchandise
Operations
Brandon R. Lehman...... 1999 $89,397 $20,000 -0- $ 2,558(2)
Treasurer 1998 81,695 15,500 -0- 3,249(2)
1997 75,644 14,000 4,000 2,136(2)
</TABLE>
- ----------
(1)The compensation reported represents: (i) the Company's contributions and
matching payments under the Company's Retirement and Savings Plan in the
aggregate amounts of $2,244 in fiscal 1999, $6,601 in fiscal 1998, and $5,013
in fiscal 1997; (ii) the premiums on a life insurance policy on the life on
Mr. Penske, of which Mr. Penske's wife is the sole beneficiary, which were
$3,959 in fiscal 1999, $3,409 in fiscal 1998, and $3,119 in fiscal 1997; and
(iii) the amount, on a term loan approach, of the benefit of the whole-life
portion of the premiums for a split dollar life insurance policy paid by the
Company projected on an actuarial basis, which amount was $40,415 in fiscal
1999, $41,386 in fiscal 1998, and $42,191 in fiscal 1997.
(2)The compensation reported represents the Company's contribution and matching
payments under the Company's Retirement and Savings Plan.
<PAGE>
Stock Option Exercises and Holdings
No stock option grants were made to any of the Named Officers in fiscal 1999.
The following table provides information related to options exercised during
fiscal 1999 by each of the Named Officers and the number and value of options
held at March 31, 1999 by such individuals:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1999 and Option Values at March 31, 1999
Number of Shares
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired Value March 31, 1999 March 31, 1999
Named Officer on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Richard H. Penske... -- -- 7,500 30,000 -- --
John F. Eureyecko.... -- -- 90,000 59,998 $135,281 --
Sharon J. Zondag...... -- -- 50,999 24,001 135,281 --
Barry R. Clauser...... -- -- 50,999 24,001 135,281 --
Brandon R. Lehman... -- -- 15,600 2,400 43,290 --
</TABLE>
<PAGE>
Report of the Compensation Committee
The Compensation Committee of the Board of Directors, consisting entirely
of non-employee directors, is responsible for reviewing and approving the
Company's compensation policies and the compensation paid to executive
officers. The Company's compensation policies are structured to enable the
Company to attract, retain and motivate highly qualified executive officers to
contribute to the Company's goals and objectives and its overall financial
success. In determining executive compensation, the Compensation Committee
reviews and evaluates information supplied by management and bases decisions
both on the Company's performance and on the individual's contribution and
performance. The compensation of executive officers includes salary and
incentive compensation. The Chief Executive Officer's compensation for fiscal
1999 was based on the same guidelines set forth in this report for executive
officers in general.
Salary
The Compensation Committee reviews the salary of each executive officer in
relation to the salary paid to him or her in the previous year and with regard
to general industry conditions or trends. The salaries are set at levels
intended to reward achievement of individual and company goals and to motivate
and retain highly qualified executives whom the Compensation Committee believe
are important to the continued success of the Company. While the Compensation
Committee's decisions are largely subjective rather than based on formulas, the
Compensation Committee does consider various measures of the financial
condition of the Company in absolute terms and in relation to internal
performance goals.
Incentive Compensation
The Compensation Committee believes that incorporating annual incentive
compensation into the total compensation of executive officers encourages the
executives to have the common goal of achieving the Company's economic and
strategic objectives. As with salary considerations, the Compensation Committee
bases its decisions regarding incentive compensation, which may take the form
of cash bonuses, grants of stock options or grants of restricted stock, on both
corporate and individual performance. Decisions are made on a subjective basis
and are not based on formulas.
Summary
As described above, the Compensation Committee believes that its policies
and actions have motivated and rewarded, and will continue to motivate and
reward, the executive officers who contribute to the Company's financial
performance and increase the Company's value to stockholders.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Alan R. Hoefer and Mark A. Randol
<PAGE>
Stock Performance Graph
The following graph compares the percentage change in the cumulative total
stockholder return on the Common Stock from the commencement of public trading
of the Common Stock on October 13, 1994 through March 31, 1999, and the
cumulative total return on the S & P 500 Index and the Dow Jones Specialty
Retail Index during such period. The comparison assumes $100 was invested on
October 13, 1994 in the Company's Common Stock and in each of the foregoing
indices and assumes the reinvestment of any dividends.
<TABLE>
<CAPTION>
Piercing S&P 500 Dow Jones
Pagoda, Inc. Specialty Retail
<S> <C> <C> <C>
10/13/1994 $100 $100 $100
12/30/1994 $97 $100 $96
3/31/1995 $77 $110 $93
6/30/1995 $97 $120 $98
9/29/1995 $127 $130 $104
12/29/1995 $164 $138 $100
3/29/1996 $139 $145 $111
6/28/1996 $168 $151 $120
9/30/1996 $202 $156 $123
12/31/1996 $220 $169 $114
3/31/1997 $230 $174 $112
6/30/1997 $228 $204 $132
9/30/1997 $289 $219 $145
12/31/1997 $261 $226 $146
3/31/1998 $284 $257 $172
6/30/1998 $330 $266 $194
9/30/1998 $157 $239 $127
12/31/1998 $132 $290 $180
3/31/1999 $122 $304 $223
</TABLE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders must be received by the Company at the address appearing on the
first page of this proxy statement by April 4, 2000 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
A stockholder of the Company may wish to have a proposal presented at the
2000 Annual Meeting of Stockholders, but not to have such proposal included in
the Company's proxy statement and form of proxy relating to that meeting. If
notice of any such proposal is not received by the Company at the address
appearing on the first page of this proxy statement by a date falling between
June 18, 2000 and July 18, 2000, inclusive, then such proposal shall be deemed
"untimely" for purposes of Rule 14a-4(c) promulgated under the Exchange Act
and, therefore, the Company will have the right to exercise discretionary
voting authority with respect to such proposal.
<PAGE>
SOLICITATION OF PROXIES
The enclosed form of proxy is being solicited on behalf of the Company's
Board of Directors. The Company will bear the cost of the solicitation of the
Board of Directors' proxies for the Meeting, including the cost of preparing,
assembling and mailing proxy materials, the handling and tabulation of proxies
received, and charges of brokerage houses and other institutions, nominees and
fiduciaries in forwarding such materials to beneficial owners.
In addition to the mailing of the proxy material, such solicitation may be
made in person or by telephone, telegraph or telecopy by directors, officers or
regular employees of the Company, or by a professional proxy solicitation
organization engaged by the Company.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS
BEING SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF SUCH PERSON,
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE
DIRECTED TO INVESTOR RELATIONS, AT THE ADDRESS OF THE COMPANY SET FORTH ON THE
FIRST PAGE OF THIS PROXY STATEMENT.
<PAGE>
Piercing Pagoda, Inc.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of Piercing Pagoda, Inc. (the "Company") hereby
appoints Richard H. Penske and John F. Eureyecko, and each of them acting
individually, with full power of substitution, to act as attorneys and proxies
for the undersigned and to vote all shares of stock of the Company which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company to be held at the Holiday Inn, Gateway
Conference Center, Routes 22 & 512, Bethlehem Pennsylvania, On September 15,
1999 at 10:00 a.m., and at any adjournment or postponement thereof, provided
that said proxies are authorized and directed to vote as indicated with respect
to the matters set forth on the opposite side of this Proxy.
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE NOMINEES OF
THE BOARD OF DIRECTORS IN THE ELECTION OF ONE DIRECTOR WHOSE TERM OF OFFICE WILL
EXTEND UNTIL THE 2002 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL HIS SUCCESSOR is
DULY ELECTED AND QUALIFIED, "FOR" THE APPROVAL OF THE AMENDMENT OF THE COMPANY'S
1994 STOCK OPTION PLAN IN ORDER TO INCREASE THE NUMBER OF SHARES AVAILABLE
THEREUNDER AND "FOR" THE APPROVAL OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE CURRENT FISCAL YEAR ENDING MARCH 31, 2000. This Proxy also
delegates discretionary authority to vote with respect to any other business
which may properly come before the meeting and any adjournment or postponement
thereof.
(Please sign and date on reverse side)
<PAGE>
1. Election of Directors.
John F. Eureyecko FOR AGAINST WITHHOLD
/---/ /---/ /---/
2. Approval of the amendment of the
Company's 1994 Stock Option Plan
in order to increase the number
of shares available thereunder. FOR AGAINST WITHHOLD
/---/ /---/ /---/
3. Ratification of the appointment of
KPMG LLP as the Company's independent
public auditors. FOR AGAINST WITHHOLD
/---/ /---/ /---/
The undersigned hereby acknowledges receipt of Notice of Annual Meeting,
Proxy Statement and Annual Report.
PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Signature(s)______________________________________Dated:________________, 1999
NOTE: Please sign this proxy exactly as name(s) appears in address. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your titles as such and, if the signer is a corporation, please sign
with full corporate name by duly authorized officer or officers and affix the
corporate seal. Where stock is issued in the name of two or more persons, all
such persons should sign.
