Gymboree DEF 14A 2005
SCHEDULE 14A INFORMATION
Filed by the Registrant x
May 4, 2005
You are cordially invited to attend The Gymboree Corporation Annual Meeting of Stockholders to be held at 9:00 a.m. on Monday, June 13, 2005, at our principal executive offices located at 500 Howard Street, San Francisco, California 94105.
At the Annual Meeting, the following matters of business will be presented:
We will also answer any related questions you may have at that time. Detailed information as to the business to be transacted at the Annual Meeting is contained in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement.
Regardless of whether you plan to attend the Annual Meeting, it is important that your shares be voted. Accordingly, we ask that you sign and return your proxy card as soon as possible in the envelope provided.
THE GYMBOREE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF THE GYMBOREE CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The Gymboree Corporation, a Delaware corporation (Gymboree), will be held on Monday, June 13, 2005, at 9:00 a.m., local time, at our principal executive offices located at 500 Howard Street, San Francisco, California 94105. The Annual Meeting will be held for the following purposes:
The Proxy Statement is being issued in connection with the solicitation of a proxy on the enclosed form by the Board of Directors of Gymboree for use at Gymborees 2005 Annual Meeting of Stockholders. You are entitled to vote at the Annual Meeting if you were a stockholder of record at the close of business on April 21, 2005. We will begin distributing this Proxy Statement, proxy card and Gymborees 2004 Annual Report to Stockholders on or about May 4, 2005.
All stockholders are cordially invited to attend the Annual Meeting in person. Regardless of whether you plan to attend the Annual Meeting, please complete, date, sign and return the enclosed proxy card as promptly as possible in order to ensure your representation at the Annual Meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for that purpose. You may still vote in person if you attend the Annual Meeting, even if you have given your proxy. Please note, however, that if a broker, bank or other nominee holds your shares of record and you wish to vote at the Annual Meeting, you must obtain from the record holder a proxy card issued in your name.
TABLE OF CONTENTS
THE GYMBOREE CORPORATION
2005 PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of The Gymboree Corporation (Gymboree, us or we) for use at the Annual Meeting of Stockholders (the Annual Meeting of Stockholders or Annual Meeting) to be held June 13, 2005 at 9:00 a.m., local time, or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at our principal executive offices located at 500 Howard Street, San Francisco, California 94105.
These proxy solicitation materials and our Annual Report to Stockholders for the fiscal year ended January 29, 2005 (fiscal year 2004), including financial statements, were mailed on or about May 4, 2005 to all stockholders entitled to vote at the Annual Meeting.
Record Date and Quorum
Stockholders of record at the close of business on April 21, 2005 (the record date) are entitled to notice of and to vote their shares at the Annual Meeting. At the record date, 31,192,742 shares of our common stock, $0.001 par value per share, were issued and outstanding. The presence in person or by proxy of the holders of record of a majority of the outstanding shares of common stock entitled to vote is required to constitute a quorum for the transaction of business at the Annual Meeting.
How to Vote
Registered stockholders can vote by telephone, by the Internet or by mail, as described below. If you are a beneficial shareholder, please refer to your proxy card or the information forwarded by your broker, bank or other holder of record to see what options are available to you.
Registered stockholders may cast their vote by:
Each holder of record of common stock on the record date is entitled to one vote for each share held on all matters to be voted on at the Annual Meeting.
If a quorum is present at the Annual Meeting, the three candidates receiving the highest number of affirmative votes will be elected. In an election of directors by plurality vote, abstentions have no effect, since approval by a percentage of the shares present or outstanding is not required. Stockholders are not entitled to cumulate votes for the election of directors.
The affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the Annual Meeting and voting is required for the approval of the advisory vote on the appointment of our independent registered public accounting firm (which shares voting affirmatively must also constitute a majority of the required quorum).
Brokers who hold shares for the accounts of their clients may vote such shares either as directed by their clients or, in the case of uninstructed shares, in their own discretion if permitted by the stock exchange or other organization of which they are members. Certain types of proposals are non-discretionary, however, and brokers who have received no instructions from their clients do not have discretion to vote such uninstructed shares on those items. At this years Annual Meeting, brokers will have discretion to vote uninstructed shares on the election of directors and the advisory vote on appointment of our independent registered public accounting firm.
When brokers vote proxies on some but not all of the proposals at a meeting, the missing votes are referred to as broker non-votes. Broker non-votes are counted as present for the purpose of determining the presence of a quorum for the transaction of business, but they are not counted as shares voting. Thus, broker non-votes can have the effect of preventing approval of certain proposals where the number of affirmative votes, though a majority of the votes cast, does not constitute a majority of the required quorum.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspector of election appointed for the Annual Meeting. The inspector of election will determine whether or not a quorum is present at the Annual Meeting. The inspector of election will treat abstentions as shares of common stock that are present and entitled to vote for purposes of determining the presence of a quorum. Therefore, abstentions will have the effect of a vote against the advisory vote on appointment of our independent registered public accounting firm.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to the Secretary of Gymboree at our principal offices as set forth above a written notice of revocation or a duly executed proxy bearing a later date or by attending the Annual Meeting and voting in person.
The expense of preparing, printing and mailing this Proxy Statement and the proxies solicited hereby will be borne by Gymboree. Proxies will be solicited by mail and may also be solicited by our directors, officers and other employees, without additional remuneration, in person or by telephone, electronic mail or facsimile transmission. We will also request brokerage firms, banks, nominees, custodians and fiduciaries to forward proxy materials to the beneficial owners of shares of common stock as of the record date and will reimburse such persons for the cost of forwarding the proxy materials in accordance with customary practice. Your cooperation in promptly voting your shares and submitting your proxy by telephone or by completing and returning the enclosed proxy card will help to avoid additional expense.
The number of directors authorized by our bylaws is seven; that number may be changed by an amendment adopted by our Board of Directors or stockholders. Our Restated Certificate of Incorporation and our bylaws each provide that the directors will be divided into three classes, with the classes serving for staggered, three-year terms. Currently there are two directors in Class I, two directors in Class II and three directors in Class III.
Three Class III directors are to be elected at the Annual Meeting. Stuart G. Moldaw, a current Class III director, has informed the Board of Directors that he will not stand for re-election upon the expiration of the term of his directorship at the Annual Meeting. Consequently, his term will expire on June 13, 2005. The nominees for election at the Annual Meeting as Class III directors are the incumbent directors, John C. Pound and William U. Westerfield. In addition, the Board of Directors has nominated Daniel R. Lyle to be elected at the Annual Meeting. Mr. Lyle was initially identified as a candidate for director by our director William U. Westerfield. Mr. Lyle was interviewed by several members of the Board of Directors, including director Gary M. Heil on behalf of the Nominating and Governance Committee. Based on his interviews and qualifications, Mr. Lyle was recommended as a nominee for director by the Nominating and Governance Committee and his nomination was approved by the Board of Directors.
The term of each Class III director elected at the Annual Meeting will expire at the Annual Meeting of Stockholders in 2008. The term of each Class I director will expire at the Annual Meeting of Stockholders in 2006. The term of each Class II director will expire at the Annual Meeting of Stockholders in 2007. Each elected director will continue to serve until a successor has been duly elected, or until death, resignation or retirement.
Unless otherwise instructed, the proxy holders will vote the proxies received by them for our three nominees named in the table below. The nominees have consented to serve as directors of Gymboree if elected, and management has no reason to believe the nominees will be unable to serve as directors. In the event that any nominee of Gymboree becomes unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders will vote the proxies for any substitute nominee who is designated by the current Board of Directors to fill the vacancy.
GYMBOREES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR EACH NOMINEE.
Nominees for Class III Directors Whose Terms Expire in 2008
Continuing Class I Directors Whose Terms Expire in 2006
Continuing Class II Directors Whose Terms Expire in 2007
Director Retiring at the Annual Meeting
Our business affairs are managed under the direction of the Board of Directors. Directors meet their responsibilities by participating in meetings of the Board and Board committees, through communications with our chief executive officer and other officers, by reviewing materials provided to them, and by visiting our offices and other facilities.
During the last fiscal year, the Board of Directors held eight meetings. The committees of the Board held a total of twenty meetings. Each director attended at least 75% of the aggregate number of meetings of the Board and Board committees on which he or she served. Each director who has been nominated for election or reelection and each director whose term will continue is expected to attend our Annual Meeting of Stockholders. Last year, all directors serving at the time who were continuing or nominated for election attended the Annual Meeting of Stockholders.
Nasdaq Marketplace Rule 4350 requires that a majority of our directors be independent, as defined by Nasdaq Marketplace Rule 4200(a)(15). The Board of Directors has undertaken a review of the independence of our directors pursuant to Nasdaq Marketplace Rule 4350. During this review the Board of Directors reviewed whether any transactions or relationships exist currently or, during the past three years existed, between each director, or certain family members of each director, and us or our subsidiaries and affiliates, senior management or their affiliates, equity investors or independent registered public accounting firm. As a result of this review, our Board of Directors determined that a majority of our directors, directors Heil, Pound, Rambo and Westerfield, are independent under the applicable Nasdaq Marketplace rules described above. Ms. Harper, who is our chief executive officer, Mr. Moldaw, who is our management advisor, and Mr. Lambert, who is our chief operating officer and chief financial officer, are not independent. The independent directors meet at least twice a year in executive sessions in conjunction with regularly scheduled board meetings.
The Board of Directors has an Audit Committee, a Nominating and Governance Committee and a Compensation Committee. Each committee operates pursuant to a written charter that is publicly available on the Gymboree website at www.gymboree.com.
The Audit Committee consists of directors Westerfield, as Chairman, Rambo and Pound. All members of the Audit Committee are independent within the meaning of the listing standards for the Nasdaq Stock Market and all possess the applicable financial literacy requirements of the Securities and Exchange Commission (SEC) and the Nasdaq Stock Market. The Board has determined that Mr. Westerfield is an audit committee financial expert, as such term is defined by the SEC. The Audit Committee assists the Board in the oversight of the integrity of Gymborees financial statements, Gymborees compliance with legal and regulatory requirements that relate to financial reporting matters, the independent registered public accounting firms qualifications and independence, the performance of Gymborees internal audit function and independent registered public accounting firm, compliance with Gymborees code of ethics for its chief executive officer and senior financial officers and compliance with Gymborees code of conduct for all Gymboree personnel. The Audit Committee also reviews and approves all related party transactions. The Audit Committee held ten meetings during the last fiscal year.
The Nominating and Governance Committee consists of directors Pound, as Chairman, and Heil. Both members of the Nominating and Governance Committee are independent within the meaning of the listing standards for the National Association of Securities Dealers. The Nominating and Governance Committee is responsible for monitoring the composition of the Board of Directors and, when appropriate, seeking, screening and recommending for nomination candidates for election to the Board of Directors. The Nominating and Governance Committee may identify candidates through third-party search firms, recommendations by current directors or executive officers, or other appropriate methods including recommendations by stockholders submitted in accordance with the procedures set forth in the section titled Consideration of Stockholder-Recommended Director Nominees in this Proxy Statement. In so doing, the Nominating and Governance Committee may evaluate a candidates decision-making abilities, business experience, relevant expertise, leadership qualities, industry knowledge, diversity, personal integrity and reputation, among other qualifications. The Nominating and Governance Committee is also responsible for evaluating the structure and practices of, and, when appropriate, recommending new policies to, the Board of Directors. The Nominating and Governance Committee held two meetings during the last fiscal year.
The Compensation Committee consists of directors Heil, as Chairman, and Pound. Both members of the Compensation Committee are independent within the meaning of the listing standards of the National Association of Securities Dealers. Both members of the Compensation Committee are also outside directors as that term is used in Section 162(m) of the Internal Revenue Code of 1986, as amended, and non-employee directors as defined in Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934, as amended. The Compensation Committee is responsible for reviewing and approving our compensation policies, including the compensation paid to executive officers. The Compensation Committee held eight meetings during the last fiscal year.
Each non-employee director other than the Chairman of the Audit Committee receives annual compensation of $40,000 for service on the Board of Directors. The Chairman of the Audit Committee receives annual compensation of $50,000. There are no additional fees for meeting attendance.
Each of our non-employee directors also receives automatic grants of options to purchase common stock. Each non-employee director is automatically granted an option to purchase 15,000 shares of common stock under our 2004 Equity Incentive Plan upon such directors initial election to the Board and on each anniversary thereafter. All directors also receive discounts on Gymboree merchandise and on participation in our Play & Music programs.
The following tables set forth certain information known to Gymboree with respect to beneficial ownership of our common stock as of April 8, 2005 by (i) each beneficial owner of more than 5% of our common stock, (ii) each director and director-nominee, (iii) our chief executive officer, the four other most highly compensated executive officers serving as executive officers at the end of fiscal year 2004 and an additional officer who would have been among the most highly compensated executive officers if he had been an executive officer at the end of fiscal year 2004 (collectively, the Named Executive Officers), and (iv) all current directors and executive officers as a group. Except as otherwise indicated, each person has sole voting and investment power with respect to all shares shown as beneficially owned, subject to community property laws where applicable. The number of shares outstanding used in calculating the percentages for a person in the table below includes the shares underlying options held by such person that are exercisable within 60 days of April 8, 2005, but excludes shares underlying options held by any other person. Percentage of beneficial ownership is based on 31,180,946 shares outstanding as of April 8, 2005.
More than 5% Beneficial Stockholders
Directors and Nominees
Named Executive Officers
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file an initial report of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the National Association of Securities Dealers. Executive officers, directors and greater than 10% stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us and written representations from certain reporting persons, we believe that, with respect to fiscal year 2004, all of our executive officers, directors and greater than 10% stockholders filed on a timely basis all reports due under Section 16(a) of the Securities Exchange Act of 1934, as amended, except that in connection with stock option grants made on September 18, 2003, February 6, 2004 and March 30, 2004, respectively, the following persons inadvertently filed the following late reports: September 18, 2003: Marina Armstrong, Lisa M. Harper, Matthew K. McCauley, Myles B. McCormick and Deborah J. Nash; February 6, 2004: Marina Armstrong, Lisa T. Bayne, Matthew K. McCauley and Myles B. McCormick; March 30, 2004: Marina Armstrong, Lisa M. Harper, Matthew K. McCauley and Myles B. McCormick. In addition, Mr. McCauley inadvertently filed a late report with respect to stock options granted on February 7, 2005.
The Compensation Committee annually reviews and approves all executive officer compensation, administers our incentive plans (including reviewing and approving equity incentive grants to all executive officers) and generally oversees our compensation programs and policies.
The general goal of our executive compensation program is to offer executive officers competitive compensation based both on our performance and on the individuals contribution and performance. Our compensation policies are intended to:
The components of our executive compensation program are:
The Compensation Committees annual review of the components and total value of the compensation of our executive officers relies on both quantitative and qualitative indicators of individual and company performance in determining the total compensation for our executive officers. Quantitative factors include the achievement of pre-established corporate earnings targets, expense ratios, store openings and performance relative to certain competitors. Qualitative factors include the achievement of business objectives and strategic initiatives, particularly with respect to our newly established operating divisions.
The Compensation Committee reviews and approves salaries for the executive officers, including the chief executive officer, on an annual basis, generally in the first fiscal quarter. The Compensation Committee uses a peer group to benchmark pay levels. The peer group is selected annually by the Compensation Committee in consultation with our compensation consultants and is not the same as the SEC-defined peer group used for the performance graph included in this Proxy Statement. The Compensation Committee selected the 2004 peer group to include a cross section of companies in the retail apparel sector, with annual sales, market capitalizations and ownership profiles comparable to ours. The Compensation Committee targets compensation paid to the executive officers to be at the median, with a few exceptions, in comparison to the range of salaries offered by these peer companies. The Compensation Committee believes that these salary levels are necessary to retain key executive officers.
Bonus and Performance-Based Cash Incentive Awards
Annual incentive bonuses for executive officers are intended to reflect the Compensation Committees belief that a significant portion of the annual compensation of each executive officer should be contingent upon Gymborees performance, as well as the individual contribution of such officer.
To carry out this policy, we have implemented The Gymboree Corporation Management Bonus Plan (the MBP), which provides executive officers and other employees the opportunity to earn incentive bonuses based on annual performance. The purpose of the MBP is to attract, retain, motivate and reward employees by directly linking the amount of any cash bonus to specific financial goals. To this end, specific earnings targets are defined and bonus percentages (of an eligible employees base salary) are established. The bonus percentage for an employee increases as the employees level of responsibility increases.
Historically, these earnings targets and bonus percentages were reviewed and approved by the Compensation Committee in the first fiscal quarter of each year for the full fiscal year. In late 2003, the Compensation Committee determined that using annual earnings targets created an all or nothing approach for bonuses. In 2003, no bonuses were awarded though many eligible employees had performed well and the Company had a successful year in many respects. For 2004, the MBP was redesigned to award bonuses on a quarterly basis based on the achievement of quarterly earnings targets. In fiscal year 2004, bonuses were awarded for the first fiscal quarter but no bonuses were paid for the last three fiscal quarters because the earnings targets approved by the Compensation Committee for each of those quarters were not met. For fiscal year 2005, the Compensation Committee has made further adjustments to the MBP including providing a range of earnings targets with varying payout percentages and administering the MBP under the 2004 Equity Incentive Plan.
The Compensation Committee may use performance-based cash awards to provide additional long-term incentives to our key executives. We believe that the ability to structure a long-term incentive award for an executive officers performance, measured by specific criteria selected for that executive officer, will increase the overall competitiveness of our compensation package and enhance the long-term incentives provided to such executive officers. We have not granted these awards in the past but have discussed doing so in the future.
We use stock options and restricted stock as long-term incentives to reward and retain executive officers as well as other key employees. Stock option and restricted stock grants provide an incentive that focuses the executives attention on Gymboree from the perspective of an owner with an equity stake in the business. The Compensation Committee believes that stock ownership by executives correlates management interests with stockholder interests and motivates executive officers to make long-term decisions that are in our best interests and those of our stockholders.
We wish to make a strong distinction between the use of equity as an ongoing component of compensation and the periodic use of equity to stake executive officers to a long-term program of value creation. We believe that at the senior level, executive officers should view strategy and value from the perspective of an owner. Our mission with senior executive officers is to provide equity incentives early on in their tenure, at a level that creates appropriate long-term incentives commensurate with their position. While we also believe in adding to that ownership level over time, as a component of compensation, we distinguish this compensation-related use of equity incentives from the more fundamental need to create a baseline level of ownership as the foundation for the creation of appropriate long-term incentives.
In 2004, the Compensation Committee continued to increase the ownership stakes of key senior executives with this goal of raising their total potential equity ownership to a level that the Committee believes to be appropriate. The option grants made in 2004 to several key executives should not, therefore, be viewed as equivalent to a performance component of their annual compensation. Rather, these grants were made to achieve the ownership levels that the Compensation Committee felt would create appropriate long-term incentives tied to implementation of the Companys multi-concept growth strategy at a time when it was most important to ensure the retention of these executive officers.
When awarding options, the Compensation Committee considers many factors in addition to those discussed above, including (1) performance by the individual; (2) stock options required from a competitive point of view to retain the services of the executive officer; (3) the challenges that would be created for our businesses if the executive officer were to leave; (4) market data for comparable companies; and (5) the number of options currently held by such executive officer. Stock options are granted to executive officers periodically and generally vest over four years following the grant date.
The Compensation Committee continues to reevaluate the broad use of stock options and has worked with management to reduce the aggregate number of employees who receive grants. We are also mindful of the accounting considerations. Accounting rules recently adopted by the Financial Accounting Standards Board will require companies to begin recognizing an accounting expense in connection with awards of stock options at the beginning of the fiscal year beginning January 29, 2006. Because of this, stock options may no longer be as attractive a form of equity compensation as they were in the past. The Compensation Committee continues to explore other forms of equity incentives, including restricted stock, that are permitted under the 2004 Equity Incentive Plan. In 2004, the Compensation Committee made a grant of restricted stock to one executive officer and is likely to make more use of restricted stock in the future.
Other Benefits and Programs
Executive officers are allowed to participate in our 1993 Employee Stock Purchase Plan on the same basis as other employees. Medical, dental, life and benefit programs that are made available to all salaried employees are also made available to officers. Executive officers are participants in both the Management Change of Control Plan and the Management Severance Plans. From time to time, certain executive officers have received automobile allowances and other special benefits such as reimbursement of moving expenses, housing allowances and reimbursement of closing costs for real estate purchases.
Compensation of the Chief Executive Officer
The compensation paid to Lisa M. Harper for fiscal year 2004 was established in accordance with the guidelines applicable to all executive officers as described above. We considered in particular the performance of our core Gymboree business, the continuing success of the Janie and Jack division and the rollout of the Janeville division under Ms. Harpers leadership.
The Compensation Committee reviewed the components of and total compensation value for Ms. Harper several times during fiscal year 2004. The Compensation Committee did not increase Ms. Harpers base salary for fiscal year 2004, nor did she receive a bonus other than the bonus earned pursuant to the MBP for the first quarter of fiscal year 2004.
In March and November 2004, the Compensation Committee granted Ms. Harper options to purchase 250,000 shares under the 2002 Stock Incentive Plan and 200,000 shares under the 2004 Equity Incentive Plan, respectively, in recognition of her contributions over the past years and throughout fiscal year 2004 and to continue the process of increasing her stake in Gymboree to a level approaching that of her peers at comparable companies.
We do not have an employment agreement with Ms. Harper or any of our other executive officers.
Tax Deductibility of Compensation
Section 162(m) of the Internal Revenue Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation in excess of $1,000,000 paid to a companys chief executive officer or any of the four other most highly compensated officers. Certain performance-based compensation is specifically exempt from the deduction limit.
The Compensation Committee intends to retain the flexibility necessary to provide total compensation in line with our competitors and the market, our compensation philosophy and our best interests. To the extent there is no adverse effect on our ability to provide compensation in line with our philosophy and practices, it is the Compensation Committees policy to minimize executive compensation expense that is non-deductible by Gymboree for tax purposes. None of the compensation paid for fiscal year 2004 was non-deductible as a result of Section 162(m).
The following line graph compares the annual percentage change in the cumulative total stockholder return for our common stock with the Nasdaq Stock Market (U.S.) Index and a SEC-defined peer group of companies identified as SIC Code 5600 whose primary business is the operation of apparel and accessory retail stores (the Peer Group). The graph assumes that $100 was invested in our common stock on January 28, 2000. In accordance with the guidelines of the SEC, the stockholder return for each entity in the Peer Group has been weighted on the basis of market capitalization as of each measurement date set forth in the graph. The information in the graph is provided in annual intervals. Historical stock price performance should not be considered indicative of future stock price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
The following table shows the compensation earned during fiscal years 2002, 2003 and 2004 by (i) our chief executive officer and (ii) the Named Executive Officers. Bonus compensation is reported in the fiscal year in which the compensation was earned.
SUMMARY COMPENSATION TABLE
OPTION GRANTS IN FISCAL YEAR 2004
The following table sets forth certain information with respect to stock option grants during fiscal year 2004 to the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 2004 AND YEAR-END OPTION VALUES
The following table sets forth information regarding option exercises by the Named Executive Officers in fiscal year 2004, and unexercised stock options held by the Named Executive Officers as of January 29, 2005.
TERMINATION OF EMPLOYMENT AND
Gymboree offers its executives certain benefits under its Management Change of Control Plan (the Plan), its Management Severance Plan for persons hired prior to November 2000 (the First Management Severance Plan) and its Management Severance Plan for persons hired during or after November 2000 (the Second Management Severance Plan). Under the Plan, executives who are participants in the Plan are eligible to receive certain lump-sum payments and continued benefits if their employment terminates on an involuntary basis other than for cause within a specified period (either twelve or eighteen months) following a Change of Control of Gymboree (as defined below). Under the Plan, an employee will generally be deemed to have been involuntarily terminated other than for cause upon (i) a significant reduction in title, duties or responsibilities, (ii) a greater than 10% reduction in annual base salary or in the annual maximum dollar amount of potential cash bonuses, (iii) a material reduction in the kind or level of employee benefits such that the overall benefits package is significantly reduced, (iv) a relocation to a place of employment more than 50 miles from the previous place of employment, or (v) the failure of our successor to assume our obligations under the Plan.
Under the First Management Severance Plan, executives who are participants in the plan are eligible to receive certain lump-sum payments if their employment with Gymboree terminates on an involuntary basis unrelated to a Change of Control of Gymboree. Under the Second Management Severance Plan, executives who are participants in the plan are eligible to receive certain payments over a twelve-month period (subject to cessation or adjustment for any executives who accept employment offers elsewhere) if their employment with Gymboree terminates on an involuntary basis unrelated to a Change of Control of Gymboree. For purposes of each of Gymborees Management Severance Plans, an employee will generally be deemed to have been involuntarily terminated if terminated other than for cause or disability (an involuntary termination does not occur if the employee accepts non-comparable employment with Gymboree or is offered comparable employment with Gymboree).
For the purposes of the foregoing plans, a Change of Control of Gymboree is generally defined as (1) an acquisition of 50% or more of the voting power of Gymboree, (2) a change in the composition of the Board of Directors of Gymboree in a two-year period, without the approval of the Incumbent Directors (as defined in each plan), that results in fewer than a majority of the Incumbent Directors remaining in office, (3) the completion of a merger or consolidation where the existing stockholders of Gymboree do not hold more than 50% of the voting power of the surviving entity, or (4) the sale or disposition of all or substantially all of the assets of Gymboree.
In the event of a Change of Control, all outstanding awards under the 1993 Stock Option Plan, the 2002 Stock Incentive Plan and the 2004 Equity Incentive Plan will become immediately vested and exercisable on that date and will be terminated in exchange for cash payments calculated by a formula under the appropriate plan. The 1993 Stock Option, the 2002 Stock Incentive Plan and the 2004 Equity Incentive Plan define a Change of Control as the acquisition by any person other than Gymboree, a subsidiary of Gymboree or an employee benefit plan of Gymboree of 50% or more of the voting power of Gymborees outstanding securities, stockholder approval of a merger or consolidation where the existing stockholders of Gymboree would not hold more than 50% of the voting power of the surviving entity, a change in the Board of Directors such that the majority of directors are no longer Incumbent Directors as that term is defined in the 1993 Stock Option Plan, the 2002 Stock Incentive Plan and the 2004 Equity Incentive Plan, or stockholder approval of an agreement for the sale or disposition of all or substantially all the assets of Gymboree.
Under our 1993 Amended and Restated Employee Stock Purchase Plan (ESPP), in the event of a merger or sale of all or substantially all of our assets, the option to purchase shares granted under the ESPP will be assumed and substituted for by the successor corporation, unless the Board of Directors determines in its sole discretion to shorten the offering period and set a new purchase date prior to such merger or sale of assets. The Board of Directors has voted to suspend the ESPP effective as of July 1, 2005.
In July 2001, we entered into a promissory note with Lisa M. Harper, our chief executive officer, under which she is obligated to repay us a principal sum of $115,000 at an interest rate of 5.50% per annum, compounded annually. The principal amount and all accrued interest is payable in its entirety in July 2005. As of April 8, 2005, the outstanding principal and interest due on the promissory note was $140,262. If Ms. Harper voluntarily ceases to be a full-time employee or consultant of Gymboree prior to the date the note is fully repaid, the remaining balance of the principal sum will be immediately due and payable.
During fiscal year 2004, Gymboree sold approximately $102,000 of obsolete inventory to Ross Stores, Inc., an off-price retailer for which Stuart G. Moldaw is a director. Mr. Moldaw is a director of Gymboree, as well as our Chairman Emeritus and Management Advisor. All sales were made pursuant to procedures approved by the Audit Committee and on terms no more favorable than terms with unrelated parties.
During fiscal year 2004, Mr. Moldaw received a salary of $29,980 as remuneration for his position as Chairman Emeritus and Management Advisor at Gymboree. On February 7, 2005, the Compensation Committee increased Mr. Moldaws compensation to $75,000 per year ($55,000 in cash and $20,000 in non-cash compensation) retroactive to June 14, 2004. As a result of the retroactive payment, Mr. Moldaws compensation earned for fiscal year 2004 was $57,887. Gymboree also provides Mr. Moldaw with an off-site office and administrative support, the expenses for which were approximately $156,264 in fiscal year 2004. Mr. Moldaws term as a director of Gymboree will expire on June 13, 2005, and he will not stand for re-election. Mr. Moldaw will continue to serve as Management Advisor to Gymboree following his retirement as a director.
Deborah J. Nash resigned as our vice president and general merchandising manager, effective September 1, 2004. Ms. Nash was provided with severance payments of $128,750.
The Audit Committee of the Board of Directors hereby reports as follows:
The aggregate fees billed by Deloitte & Touche LLP for the indicated services performed for fiscal years 2004 and 2003 were as follows:
The Audit Committee has considered, and believes that, the non-audit services provided by Deloitte & Touche LLP as described above are compatible with maintaining Deloitte & Touche LLPs independence as Gymborees independent registered public accounting firm.
The Audit Committee has established a policy requiring its pre-approval of the retention of our independent registered public accounting firm for all audit, review or attest engagements and all non-audit services that the independent registered public accounting firm is permitted to provide Gymboree, as well as its approval of all fees for such services, other than de minimis non-audit services allowed by relevant law. In fiscal year 2004, the Audit Committee pre-approved all fees listed in the table above.
The Audit Committee has selected Deloitte & Touche LLP, an independent registered public accounting firm, to audit our financial statements for the fiscal year ending January 28, 2006, and recommends that the stockholders vote in favor of such appointment.
Deloitte & Touche LLP has served as our independent auditors since 1987. Stockholder approval of the selection of Deloitte & Touche LLP as our independent registered public accounting firm is not required by our bylaws or otherwise. The Sarbanes-Oxley Act of 2002 requires the Audit Committee to be directly responsible for the appointment, compensation and oversight of Gymborees independent registered public accounting firm. However, the Board of Directors is submitting this matter to the shareholders as a matter of good corporate practice. The Audit Committee will consider the results of the stockholder vote and in the event of a negative vote will reconsider its selection of Deloitte & Touche LLP. Even in the event of an affirmative stockholder vote, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Gymboree.
Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting of Stockholders and will have the opportunity to make a statement if they so desire. The representatives are also expected to be available to respond to appropriate questions from stockholders.
GYMBOREES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
Other Matters of Business
Gymboree knows of no other matters to be submitted at the Annual Meeting. If any other matters properly come before the Annual Meeting or any adjournment or postponement thereof, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as the Board of Directors may recommend.
Copies of The Gymboree Corporation 2004 Annual Report to Stockholders, which includes the Gymboree Annual Report on Form 10-K for fiscal year 2004, are being mailed to stockholders, together with this Proxy Statement. Additional copies may be obtained from the Corporate Secretary of Gymboree at 500 Howard Street, San Francisco, California 94105 or through either Gymborees website at www.gymboree.com or the SEC website at www.sec.gov.
Corporate Governance Information
The following corporate governance materials of Gymboree are available in the Investors section of Gymborees website at www.gymboree.com. You may access the materials by clicking on the Our Company link:
If any material provisions of our Business & Ethics Code of Conduct or our Code of Ethics for Senior Financial Officers are waived for our chief executive officer or senior financial officers, or if any substantive changes are made to either code as they relate to any director or executive officer, we will disclose that fact on our website within five business days.
As permitted by the SECs rules, Gymboree will deliver a single copy of the annual report and proxy statement to multiple stockholders sharing an address unless Gymboree has received contrary instructions from one or more of the stockholders. Gymboree will, upon written or oral request, deliver a separate copy of these documents to a stockholder at a shared address to which a single copy of the documents was delivered. Registered stockholders wishing to receive a separate annual report and proxy statement in the future or registered stockholders sharing an address wishing to receive a single copy of the annual report and proxy statement in the future may contact ADP Investor Communications Services, 51 Mercedes Way, Edgewood, New York 11717, Attention: Householding Department, or by telephone at (800) 669-4213.
Deadline for Receipt of Stockholder Proposals for 2006 Annual Meeting
Proposals of stockholders of Gymboree which are intended to be included in our proxy statement and presented by such stockholders at our 2006 Annual Meeting must be received by us no later than January 4, 2006. In addition, our bylaws establish an advance notice procedure for stockholder proposals that are not intended to be included in our proxy statement, including nominations for the election of directors. A copy of the full text of the bylaw provisions setting forth the advance notice procedure may be obtained by writing to our Corporate Secretary or via the SECs website at www.sec.gov. For proposals and nominations to be properly brought before the 2006 Annual Meeting by a stockholder, the stockholder must provide written notice delivered to or mailed to and received by our Corporate Secretary at our principal executive offices no later than January 4, 2006. Any notice of a proposal or nomination received by us after that date will be considered untimely.
Consideration of Stockholder-Recommended Director Nominees
Gymborees Nominating and Governance Committee will consider director nominee recommendations submitted by stockholders. Stockholders who wish to recommend a director nominee should submit their suggestions in writing to the following: Chairperson of Nominating and Governance Committee, Attn: Corporate Secretary, The Gymboree Corporation, 500 Howard Street, San Francisco, California 94105.
Stockholders should include the name, biographical information, and other relevant information relating to the recommended director nominee, including information that would be required to be included in the proxy statement filed in accordance with applicable rules under the Securities Exchange Act of 1934, as amended, and the written consent of the director nominee to be named as a nominee and to serve as a director, if elected. Evaluation of any such recommendations is the responsibility of the Nominating and Governance Committee. In the event of any stockholder recommendations, the Nominating and Governance Committee would evaluate the persons recommended in the same manner as other candidates.
Stockholder Communications with the Board of Directors
Stockholders may contact an individual director or our Board of Directors as a group by sending written correspondence to the following address: Board of Directors, Attn: Corporate Secretary, The Gymboree Corporation, 500 Howard Street, San Francisco, California 94105. Stockholders should clearly specify in each communication the name of the individual or group of directors to whom the communication is addressed.
THE GYMBOREE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, JUNE 13, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF