SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

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¨ Soliciting Material Pursuant to § 240.14a-12

Hot Topic, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

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HOT TOPIC, INC.

18305 E. San Jose Avenue

City of Industry, California 91748

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held On June 14, 2007

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Hot Topic, Inc., a California corporation. The meeting will be held on Thursday, June 14, 2007 at 8:30 a.m. local time at our headquarters located at 18305 E. San Jose Avenue, City of Industry, California 91748 for the following purposes:

1. To elect six directors to hold office until our 2008 Annual Meeting of Shareholders.

2. To ratify the selection by the Audit Committee of our Board of Directors of Ernst & Young LLP as our independent auditors for the fiscal year ending February 2, 2008.

3. To conduct any other business properly brought before the meeting.

These items of business are more fully described in the Proxy Statement accompanying this Notice.

The record date for the annual meeting is April 19, 2007. Only shareholders of record at the close of business on that date may vote at the meeting or any adjournment or postponement thereof.

By Order of the Board of Directors

Christopher J. Kearns

Secretary

City of Industry, California

May 4, 2007

You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the proxy accompanying this notice as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the meeting, you must request and obtain a proxy issued in your name from that record holder. If you plan to attend the meeting, we request that you (though you are not required to) call in advance and notify Megan Hall at our headquarters, at (626) 839-4681.

HOT TOPIC, INC.

18305 E. San Jose Avenue

City of Industry, California 91748

PROXY STATEMENT

FOR THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD JUNE 14, 2007

QUESTIONS AND ANSWERS

Why am I receiving these proxy materials?

We sent you this proxy statement and the accompanying proxy card because the Board of Directors of Hot Topic, Inc. is soliciting your proxy to vote at its 2007 Annual Meeting of Shareholders. You are invited to attend the annual meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the accompanying proxy card.

We intend to mail this proxy statement and the accompanying proxy card on or about May 4, 2007 to all shareholders of record entitled to vote at the annual meeting.

Who can vote at the annual meeting?

Only shareholders of record at the close of business on April 19, 2007, the record date for the annual meeting, will be entitled to vote at the annual meeting. At the close of business on the record date, there were 44,243,940 shares of common stock outstanding and entitled to vote.

Shareholder of Record: Shares Registered in Your Name

If at the close of business on the record date, your shares were registered directly in your name with our transfer agent, Wells Fargo Bank Minnesota, N.A., then you are a shareholder of record. As a shareholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the accompanying proxy card to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of a Broker, Bank or Other Agent

If at the close of business on the record date, your shares were held, not in your name, but rather in an account at a brokerage firm, bank or other agent, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by your broker, bank or other agent. The broker, bank or other agent holding your account is considered to be the shareholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent on how to vote the shares in your account. You are also invited to attend the annual meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy issued in your name from your broker, bank or other agent.

What am I voting on?

There are two matters scheduled for a vote at the annual meeting:

• the election of six directors to hold office until our 2008 Annual Meeting of Shareholders, and

• the ratification of the selection by the Audit Committee of our Board of Directors of Ernst & Young LLP as our independent auditors for the fiscal year ending February 2, 2008.

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How do I vote?

For the election of directors, you may either vote “For” all the nominees or you may “Withhold” your vote for any nominee you specify. For any other matter to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are as follows:

Shareholder of Record: Shares Registered in Your Name

If you are a shareholder of record, you may vote in person at the annual meeting. Alternatively, you may vote by proxy by using the accompanying proxy card. Whether or not you plan to attend the annual meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the annual meeting and vote in person if you have already voted by proxy.

• To vote in person, come to the annual meeting and we will give you a ballot when you arrive.

• To vote using the proxy card, simply complete, sign and date the accompanying proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct.

Beneficial Owner: Shares Registered in the Name of Broker, Bank or Other Agent

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the annual meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of common stock you own as of the close of business on April 19, 2007, the record date for the annual meeting.

What if I return a proxy card but do not make specific choices?

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “For” the election of all six nominees for director and “For” the ratification of Ernst & Young LLP as our independent auditors. If any other matter is properly presented at the meeting, one of the individuals named on your proxy card as your proxy will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

What does it mean if I receive more than one proxy card?

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

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Can I change my vote after submitting my proxy?

Yes. You can revoke your proxy at any time before the applicable vote at the annual meeting. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:

• You may submit another properly completed proxy with a later date,

• You may send a written notice that you are revoking your proxy to our Secretary at 18305 E. San Jose Avenue, City of Industry, California 91748, or

• You may attend the annual meeting and vote in person (however, simply attending the annual meeting will not, by itself, revoke your proxy).

If your shares are held by your broker, bank or other agent, you should follow the instructions provided by them.

When are shareholder proposals due for next year’s annual meeting?

To be considered for inclusion in next year’s proxy materials, a shareholder proposal must be submitted in writing by January 5, 2008, to our Secretary at 18305 E. San Jose Avenue, City of Industry, California 91748. If you wish to submit a proposal that is not to be included in next year’s proxy materials, your proposal generally must be submitted in writing to the same address no later than February 15, 2008. Please review our Amended and Restated Bylaws, which contain additional requirements regarding advance notice of shareholder proposals.

How are votes counted?

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For” and “Withhold” and, with respect to any proposals other than the election of directors, “Against” votes, abstentions and broker non-votes. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions with respect to that proposal from the beneficial owner, despite voting on at least one other proposal for which it does have discretionary authority or for which it has received instructions. Abstentions and broker non-votes will not be counted towards the vote total for any proposal.

If your shares are held by your broker, bank or other agent as your nominee (that is, in “street name”), you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker, bank or other agent to vote your shares. If you do not give instructions to your broker, bank or other agent, they can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of the New York Stock Exchange on which your broker, bank or other agent may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not give instructions to your broker, bank or other agent, the shares will be treated as broker non-votes.

How many votes are needed to approve each proposal?

• For the election of directors, the six nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome.

• To be approved, the ratification of the selection of Ernst & Young LLP as our independent auditors must receive a “For” vote from the majority of shares present and entitled to vote either in person or by proxy. Abstentions and broker non-votes will have no effect.

What is the quorum requirement?

A quorum of shareholders is necessary to hold a valid annual meeting. A quorum will be present if at least a majority of the outstanding shares as of the close of business on the record date are represented by shareholders

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present at the annual meeting or by proxy. At the close of business on the record date, there were 44,243,940 shares outstanding and entitled to vote. Therefore, in order for a quorum to exist, 22,121,971 shares must be represented by shareholders present at the annual meeting or by proxy.

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the annual meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the annual meeting may adjourn the meeting to another date.

How can I find out the results of the voting at the annual meeting?

Preliminary voting results will be announced at the annual meeting. Final voting results will be published in our quarterly report on Form 10-Q for the second quarter of our fiscal year ending February 2, 2008.

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Board of Directors currently consists of seven directors. Kathleen Mason is currently a director and has elected not to stand for re-election this year. As of the annual meeting, the number of authorized directors will be six, pursuant to our charter documents and resolution of our Board of Directors, and subject to future change as permitted thereby. Accordingly, there are six nominees for director this year. Each director to be elected will hold office until our next annual meeting of shareholders and until his or her successor is duly elected and qualified, or until the director’s death, resignation or removal. Each of the nominees listed below is currently a director of ours who was previously elected by the shareholders.

The candidates receiving the highest number of “For” votes by the shares entitled to be voted will be elected. If no contrary indication is made, shares represented by executed proxies will be voted “For” the election of the six nominees named below or, if any nominee becomes unavailable for election as a result of an unexpected occurrence, “For” the election of a substitute nominee designated by our Board of Directors. Each nominee has agreed to serve as a director if elected, and we have no reason to believe that any nominee will be unable to serve.

We invite all of our nominees for director to attend our annual meeting of shareholders. All of the nominees for election as a director at the 2006 Annual Meeting of Shareholders attended the 2006 Annual Meeting of Shareholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE NAMED BELOW.

Nominees

The following is biographical information as of March 21, 2007 for each nominee for director.

Name	Age	Position
Cynthia Cohen	54	Director
Corrado Federico	66	Director
W. Scott Hedrick	61	Director
Elizabeth McLaughlin	46	Chief Executive Officer and Director
Bruce Quinnell	58	Chairman of the Board
Andrew Schuon	42	Director

Cynthia Cohen has served on our Board of Directors since September 2001. Ms. Cohen is the President of Strategic Mindshare, a marketing and strategy consulting firm that she founded in 1990. Prior to founding Strategic Mindshare, Ms. Cohen was a Partner in Management Consulting with Deloitte & Touche. Ms. Cohen is a director of bebe Stores, Inc., a publicly traded apparel company, Equity One, Inc., a publicly traded real estate investment trust, and Steiner Leisure Limited, a publicly traded provider of spa services and products. She is also Chairman of the Strategic Mindshare Foundation, which provides mentoring and scholarships to young women pursuing business careers.

Corrado Federico has served on our Board of Directors since December 1997. Mr. Federico is also a director of bebe Stores, Inc., a publicly traded apparel company, and the President of Corado, Inc., a land development company. Since 2002, Mr. Federico also has served as a retail consultant with an overseas company specializing in purchasing American brands. Since May 1999, he has also served as President of Solaris Properties, Inc., a real estate company. From 1986 to 1991, Mr. Federico served as President and Chief Executive Officer of ESPRIT’s United States apparel, retail, and mail order operations.

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W. Scott Hedrick has served on our Board of Directors since January 2002. Mr. Hedrick was a founder and has been a General Partner of InterWest Partners, a venture capital fund, since 1979. Since April 1991, Mr. Hedrick has been a director of Office Depot, Inc., a publicly-traded, consumer products company, and from November 1986 until April 1991, he served as a director of The Office Club, Inc., a publicly-traded, consumer products company, which was acquired by Office Depot, Inc. in April 1991. He is also a director of American Funds Target Date Retirement Series Inc. Mr. Hedrick also serves as a director of privately-held companies.

Elizabeth McLaughlin has served as our Chief Executive Officer since August 2000, and has served on our Board of Directors since May 2000. She also served as our President from February 2000 through September 2003. From June 1996 through February 2000, Ms. McLaughlin served as our Senior Vice President and General Merchandise Manager. From May 1993 through May 1996, Ms. McLaughlin was our Vice President, Operations. Prior to joining us, Ms. McLaughlin held various positions with Millers Outpost and The Broadway. Ms. McLaughlin is a member of the Board of Visitors for the Anderson School at UCLA. Ms. McLaughlin serves on the board of directors at Noodles & Company, a privately-held casual dining restaurant company.

Bruce Quinnell has served on our Board of Directors since September 1998 and has served as Chairman of the Board since August 2002. From April 1999 to February 2002, Mr. Quinnell was Vice Chairman of Borders Group, Inc. From January 1997 to April 1999, Mr. Quinnell was the President and Chief Operating Officer of Borders Group, Inc. Mr. Quinnell is a director of Tuesday Morning Corporation, an operator of first-quality discount and closeout home furnishing and gift stores.

Andrew Schuon has served on our Board of Directors since January 1998. Mr. Schuon is founder and President of Vivendi/Universal’s IMF: The International Music Feed, a 24-hour cable TV channel. From August 2002 to February 2004, Mr. Schuon was President of Programming of Infinity Broadcasting. From April 2001 to August 2002, he was President and Chief Executive Officer of Pressplay, a joint venture created by Sony Music Entertainment and Universal Music Group. From December 1999 to April 2001, Mr. Schuon was President and Chief Operating Officer of the Universal Music Group’s music business, Farmclub.com, Inc. Prior to that, from February 1998 to November 1999, Mr. Schuon was Executive Vice President/General Manager of Warner Bros. Records Inc. From 1992 to December 1997, Mr. Schuon served as Executive Vice President of MTV where he was responsible for programming, music, production and talent for their MTV and VH1 cable channels.

Independence of the Board of Directors and its Committees

As required under Nasdaq Stock Market listing standards, a majority of the members of a listed company’s board of directors must qualify as “independent,” as affirmatively determined by the board. Our Board of Directors consults with our counsel to ensure that the Board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in applicable Nasdaq listing standards, as in effect from time to time.

Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and Hot Topic, our senior management and our independent auditors, our Board of Directors has affirmatively determined that all of our directors are independent directors within the meaning of the applicable Nasdaq listing standards, except for Ms. McLaughlin, our Chief Executive Officer.

As required under applicable Nasdaq listing standards, our independent directors meet in regularly scheduled executive sessions at which only independent directors are present. All of the committees of our Board of Directors are comprised entirely of directors determined by the Board to be independent within the meaning of the applicable Nasdaq listing standards and free of any relationship that would impair his individual exercise of independent judgment with regard to Hot Topic.

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Information Regarding the Board of Directors and its Committees

Our Board of Directors has an Audit Committee, a Compensation Committee and a Governance and Nominating Committee. Each of the committees has been formed and approved by our Board of Directors, and each has been authorized by its charter and/or resolution of the Board of Directors to hire or retain, at our expense, attorneys, consultants and other experts as such committee deems appropriate in the carrying out of its duties and responsibilities. The following is current membership information for each of these committees, as well as a description of each committee and its functions.

Name	Audit Committee		Compensation Committee		Governance and Nominating Committee
Cynthia Cohen			X		X	*
Corrado Federico	X		X
W. Scott Hedrick	X		X	*	X
Kathleen Mason					X
Bruce Quinnell	X	*
Andrew Schuon					X
Total meetings in fiscal year 2006	5		1		4

* Committee Chairperson

Audit Committee

The Audit Committee operates pursuant to a written charter that is available on our investor relations website at http://investorrelations.hottopic.com. The Audit Committee oversees our corporate accounting and financial reporting process. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications of our independent auditors; determines and approves the engagement of our independent auditors; determines whether to retain or terminate our existing independent auditors or to appoint and engage new independent auditors; reviews and approves the retention of our independent auditors to perform any proposed permissible non-audit services; reviews and approves or rejects transactions between Hot Topic and any related persons; confers with our management and our independent auditors regarding the effectiveness of internal controls over financial reporting; establishes procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; reviews the financial statements to be included in our Annual Report on Form 10-K; and discusses with management and our independent auditors the results of the annual audit and the results of our quarterly financial statements.

Our Board of Directors has determined that Mr. Quinnell qualifies as an “audit committee financial expert,” as defined in applicable Securities and Exchange Commission, or SEC, rules. The Board made a qualitative assessment of Mr. Quinnell’s level of knowledge and experience based on a number of factors, including his formal education and experience as a public company chief financial officer and chief operating officer.

Report of the Audit Committee of the Board of Directors

The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of Hot Topic under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

We have reviewed and discussed with management our consolidated financial statements as of and for the fiscal year ended February 3, 2007.

We have discussed with the independent public accountants the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended.

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We have received and reviewed the written disclosures and the letter from the independent public accountants required by Independence Standard No. 1, Independence Discussions with Audit Committees, as amended, and have discussed with the independent public accountants their independence.

Based on the reviews and discussions referred to above, we recommended to our Board of Directors that the financial statements referred to above be included in our Annual Report on Form 10-K.

Audit Committee

Bruce Quinnell, Chairman

Corrado Federico

W. Scott Hedrick

Compensation Committee

The Compensation Committee operates pursuant to a written charter that is available on our investor relations website at http://investorrelations.hottopic.com. The Compensation Committee reviews and approves our overall compensation strategy and policies. The Compensation Committee reviews and approves corporate performance goals and objectives relevant to the compensation of our executive officers and other senior management; reviews and approves the compensation and other terms of employment of our executive officers; administers our stock option and purchase plans, pension and profit sharing plans, stock bonus plans, deferred compensation plans and other similar programs; and reviews with management our Compensation Discussion and Analysis and considers whether to recommend that it be included in proxy statements and other filings. The Compensation Committee takes action both by resolution at meetings (or by unanimous written consent), as well as by recommending measures for approval by the entire Board of Directors.

The Compensation Committee meets in approximately March of each year to discuss and set strategy and policies for the short-term and long-term; and the Compensation Committee meets or acts by unanimous written consent other times during the year as it deems necessary. The agenda for each meeting is usually developed by the Chair of the Compensation Committee, in consultation with our Chief Executive Officer. During each meeting, the Compensation Committee meets in executive session. However, from time to time, various members of management and other employees as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice or otherwise participate in Compensation Committee meetings. The Chief Executive Officer may not participate in or be present during any deliberations or determinations of the Compensation Committee regarding her compensation. The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel; and the Compensation Committee is authorized to obtain, at our expense, advice and assistance from internal and external legal, accounting or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

In the past, the Compensation Committee has engaged Mercer Human Resource Consulting as an independent compensation consultant. The Compensation Committee has also received advice and counsel from attorneys specializing in executive compensation matters, and from various publications.

Under its charter, the Compensation Committee may form, and delegate authority to, subcommittees, as appropriate. In 2006, in connection with adoption and approval of our 2006 Equity Incentive Plan, or the 2006 Incentive Plan, the Compensation Committee delegated authority to grant, without any further action required by the Compensation Committee, stock options to our employees who are not officers, to a committee of at least two members of our Board of Directors, consisting of our Chief Executive Officer and at least one member of the Compensation Committee, referred to as Option Grant Committees. The 2006 Incentive Plan by its terms permits the grant of stock options and other awards by the Compensation Committee and by Option Grant Committees,

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in addition to by the Board of Directors. The purpose of this delegation of authority is to enhance the flexibility of option administration and to facilitate the timely grant of options to non-management employees, particularly new employees, within specified limits approved by the Compensation Committee. Typically, as part of its oversight function, the Board of Directors or Compensation Committee will review on a quarterly basis the list of grants made by all Option Grant Committees. During the fiscal year ended February 3, 2007, options to purchase an aggregate of 70,000 shares were granted under the 2006 Incentive Plan to non-officer employees by Option Grant Committees.

Historically, the Compensation Committee has made most significant adjustments to annual compensation, determined bonus and equity awards and established new performance objectives at one or more meetings held during the first quarter of the fiscal year. However, the Compensation Committee also considers matters related to individual compensation, such as compensation for new executive hires, as well as high-level strategic issues, such as the efficacy of our compensation strategy, potential modifications to that strategy and new trends, plans or approaches to compensation, during the first quarter and as appropriate at meetings throughout the year. Generally, the Compensation Committee’s process comprises three related elements: the consideration and approval of bonuses for past periods; the determination of compensation levels; and the establishment of performance objectives for the current or ensuing year. The Compensation Committee solicits and considers evaluations and recommendations submitted to the Compensation Committee by our Chief Executive Officer. For all executives and directors, as part of its deliberations, the Compensation Committee may review and consider, as appropriate, materials such as financial reports and projections, operational data, tax and accounting information, executive and director stock ownership information, company stock performance data, analyses of historical executive compensation levels and current company-wide compensation levels, and recommendations of the Compensation Committee’s compensation consultants or advisers, including analyses of executive and director compensation paid at other companies.

The specific determinations of the Compensation Committee with respect to executive compensation are described in greater detail in the Compensation Discussion and Analysis section of this proxy statement.

Compensation Committee Interlocks and Insider Participation

Messrs. Hedrick and Federico, and Ms. Cohen, currently serve as members of the Compensation Committee. Compensation of Messrs. Hedrick and Federico, and Ms. Cohen, as well as our other non-employee directors, is determined by the entire Board with a view to attracting and retaining talented individuals to serve as directors. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Compensation Committee Report

The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of Hot Topic under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on this review and discussion, the Compensation Committee has recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated into our Annual Report on Form 10-K for the fiscal year ended February 3, 2007.

Compensation Committee

W. Scott Hedrick, Chairman

Cynthia Cohen

Corrado Federico

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Governance and Nominating Committee

The Governance and Nominating Committee operates pursuant to a written charter that is available on our investor relations website at http://investorrelations.hottopic.com. The Governance and Nominating Committee interviews, evaluates, nominates, and recommends individuals for membership on the Board and committees thereof; nominates specific individuals to be elected as our officers by the Board; evaluates and recommends whether a Board or committee member qualifies as an independent director; stays abreast of developments in the area of corporate governance; and has oversight responsibility for questions pertaining to the quality of the process by which the Board and committees conduct their affairs, the quality of the strategic planning process, matters of ethics and/or conflicts of interest on the part of the directors, continuing education of directors, and the design and implementation of our Chief Executive Officer review process.

The Governance and Nominating Committee believes that candidates for director should have certain minimum qualifications, including being able to read and understand basic financial statements, being over 21 years of age and having the highest personal integrity and ethics. The Governance and Nominating Committee also considers such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to our affairs, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our shareholders. However, the Governance and Nominating Committee retains the right to modify these qualifications from time to time. Candidates for director nominees are reviewed in the context of the current composition of our Board of Directors, our operating requirements and the long-term interests of our shareholders. In conducting this assessment, the Governance and Nominating Committee considers diversity, age, skills, and such other factors as it deems appropriate given the current needs of the Board and Hot Topic, to maintain a balance of knowledge, experience and capability. In the case of incumbent directors whose terms of office are set to expire, the Governance and Nominating Committee reviews such directors’ overall service to us during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Governance and Nominating Committee also determines whether the nominee must be independent for Nasdaq purposes, which determination is based upon applicable Nasdaq listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary. The Governance and Nominating Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Governance and Nominating Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of our Board of Directors. The Governance and Nominating Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote. From time to time, we have paid various third party recruiters to help us identify potential nominees for our Board of Directors.

The Governance and Nominating Committee will consider director candidates recommended by shareholders. The Governance and Nominating Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether or not the candidate was recommended by a shareholder. Our Policy on Shareholder Recommendations of Director Nominees is available on our investor relations website at http://investorrelations.hottopic.com. Shareholders who wish to recommend individuals for consideration by the Governance and Nominating Committee to become nominees for election to the Board at an annual meeting of shareholders must do so by delivering a written recommendation to the Governance and Nominating Committee at the following address: 18305 E. San Jose Avenue, City of Industry, California 91748 at least 120 days prior to the anniversary date of the mailing of our proxy statement for the last annual meeting of shareholders. Submissions must include the full name of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director and a representation that the nominating shareholder is a beneficial or record owner of our stock. Any such submission must be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as a director if elected. To

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date, the Governance and Nominating Committee has not rejected a timely director nominee from a shareholder or shareholders holding more than 5% of our voting stock.

With respect to the quality of the process by which the existing Board and committees conduct their affairs, in addition to developing agenda and strategic planning items for Board consideration, the Governance and Nominating Committee requires or recommends various activities for Board members. Among other things, a periodic part of meetings of the Board involves continuing education matters relating to corporate governance and other subjects, presented by counsel or other experts. Also, the Board has a store visitation policy, pursuant to which non-employee directors are required to visit various Hot Topic and Torrid stores to make sure they keep a current, first-hand understanding of the store environment and offerings; and Board members are encouraged to attend music concerts and events relevant to our business.

Meetings of the Board of Directors and Board and Committee Member Attendance

Our Board of Directors met six times during the last fiscal year. The Board of directors did not act by unanimous written consent during the fiscal year. Each Board member attended 75% or more of the aggregate of the meetings of the Board and of the committees on which he or she served, held during the period for which he or she was a director or committee member, respectively.

Shareholder Communications With the Board Of Directors

The Governance and Nominating Committee has adopted a formal process by which our shareholders may communicate with the Board or an individual director. Our Policy on Shareholder Communications is available on our investor relations website at http://investorrelations.hottopic.com. Shareholders who wish to communicate with the Board may do so by sending written communications addressed to the Secretary of Hot Topic at 18305 E. San Jose Avenue, City of Industry, California 91748. Communications also may be sent by e-mail to the following address: investorrelations@hottopic.com. Any communication sent must state the name of the shareholder making the communication and the number of shares owned by the shareholder. These communications will be reviewed by our Secretary, who will determine whether they should be presented to the Board. The purpose of this screening is to allow the Board to avoid having to consider irrelevant or inappropriate communications (such as advertisements, solicitations and hostile communications that do not raise substantive matters for the Board’s review). The screening procedures have been approved by a majority of the independent directors of the Board.

STANDARDS OF BUSINESS ETHICS

We have adopted Standards of Business Ethics that apply to all of our officers, directors and employees. The Standards of Business Ethics is available on our investor relations website at http://investorrelations.hottopic.com. If we make any substantive amendments to the Standards of Business Ethics or grant any waiver from a provision of the Standards of Business Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website, as well as via any other means then required by Nasdaq listing standards or applicable law.

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PROPOSAL 2

RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Audit Committee of our Board of Directors has engaged Ernst & Young LLP as our independent auditors for the fiscal year ending February 2, 2008 and is seeking ratification of such selection by our shareholders at the annual meeting. Ernst & Young LLP has audited our financial statements since our inception in 1988. Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither our Bylaws nor other governing documents or law require shareholder ratification of the selection of Ernst & Young LLP as our independent auditors. However, the Audit Committee is submitting the selection of Ernst & Young LLP to our shareholders for ratification as a matter of good corporate practice. If our shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain Ernst & Young LLP. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of Hot Topic and our shareholders.

To be approved, the ratification of the selection of Ernst & Young LLP as our independent auditors must receive a “For” vote from the majority of shares present and entitled to vote either in person or by proxy. Abstentions and broker non-votes will not be counted for any purpose in determining whether this matter has been approved.

Principal Accountant Fees and Services

The following provides information regarding the fees billed to us by Ernst & Young LLP for the fiscal years ended January 28, 2006 and February 3, 2007. All fees described below were approved by the Audit Committee.

Audit Fees

Fees for audit services totaled approximately $837,000 for the fiscal year ended January 28, 2006, and approximately $720,000 for the fiscal year ended February 3, 2007, including fees associated with the annual audit, compliance with regulations and rules promulgated under the Sarbanes-Oxley Act of 2002 (including Section 404 internal control requirements) and reviews of our quarterly reports on Form 10-Q.

Audit-Related Fees

Fees for audit-related services totaled approximately $51,000 for the fiscal year ended January 28, 2006 and approximately $31,000 for the fiscal year ended February 3, 2007. Audit-related services principally include the audit for our benefit plan, statutory audit and assistance with Sarbanes-Oxley Section 404 internal control requirements.

Tax Fees

We did not incur any fees for tax services for the fiscal years ended January 28, 2006 and February 3, 2007.

All Other Fees

There were no other fees for the fiscal years ended January 28, 2006 and February 3, 2007.

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Pre-Approval Policies and Procedures

The Audit Committee, pursuant to its charter, is required to review and approve the proposed retention of independent auditors to perform any proposed permissible non-audit services. To date the Audit Committee has not established policies and procedures separate from its charter concerning pre-approval of audit or non-audit services. The establishment of any separate pre-approval policies and procedures is subject to the approval of the Audit Committee.

The Audit Committee has determined that the rendering of the pre-approved services other than audit services by Ernst & Young LLP is compatible with maintaining Ernst & Young LLP’s independence.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS OUR INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING FEBRUARY 2, 2008.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information regarding the beneficial ownership of our common stock as of March 21, 2007 by: (i) each of our directors; (ii) each of our executive officers named in the Summary Compensation Table included later in this proxy statement; (iii) all of our executive officers and directors as a group; and (iv) each person, or group of affiliated persons, known by us to beneficially own more than five percent of our common stock. The table is based upon information supplied by our officers, directors and principal shareholders and a review of Schedules 13D and 13G, if any, filed with the SEC. Unless otherwise indicated in the footnotes to the table and subject to community property laws where applicable, we believe that each of the shareholders named in the table has sole voting and investment power with respect to the shares indicated as beneficially owned.

Applicable percentages are based on 44,241,690 shares outstanding on March 21, 2007, adjusted as required by rules promulgated by the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options that are either immediately exercisable or exercisable on or before May 20, 2007, which is 60 days after March 21, 2007. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

Name and Address of Beneficial Owner (1)	Number of Shares Beneficially Owned	Percentage of Shares Beneficially Owned
FMR Corp. (2) 82 Devonshire Street Boston, Massachusetts 02109	6,608,444	14.9	%
T. Rowe Price Associates, Inc. (3) 100 East Pratt Street Baltimore, Maryland 21202	3,213,950	7.3	%
Daruma Asset Management, Inc. (4) 80 West 40th Street, 9th Floor New York, New York 10018	2,912,900	6.6	%
Elizabeth McLaughlin (5)	2,021,664	4.4	%
Cynthia Cohen (6)	62,637	*
Corrado Federico (7)	132,626	*
W. Scott Hedrick (8)	81,490	*
Kathleen Mason (9)	31,867	*
Bruce Quinnell (10)	134,801	*
Andrew Schuon (11)	74,032	*
Gerald Cook (12)	417,240	*
Christopher Daniel (13)	87,499	*
Maria Comfort (14)	41,625	*
James McGinty (15)	280,024	*
All executive officers and directors as a group (14 persons) (16)	3,595,081	7.5	%

* Less than one percent.

(1) Unless otherwise indicated, the address of all the owners is: c/o Hot Topic, Inc., 18305 E. San Jose Avenue, City of Industry, California 91748.

(2) Based on Amendment No. 7 to Schedule 13G filed by FMR Corp. with the SEC on February 14, 2007. Includes shares beneficially owned by Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp.

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(3) Based on Amendment No. 2 to Schedule 13G filed by T. Rowe Price Associates, Inc. with the SEC on February 13, 2007. The shares are owned by various individual and institutional investors for which T. Rowe Price Associates, Inc. serves as investment adviser with power to direct investments and/or sole power to vote the shares. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of such shares; however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the beneficial owner of such shares.

(4) Based on Schedule 13G filed by Daruma Asset Management, Inc., or Daruma, with the SEC on February 13, 2007. The shares are beneficially owned by one or more investment advisory clients whose accounts are managed by Daruma. The investment advisory contracts relating to such accounts grant to Daruma sole investment and/or voting power over such shares. Therefore Daruma may be deemed to be the beneficial owner of such shares for purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended; however, Daruma expressly disclaims that it is, in fact, the beneficial owner of such shares. Mariko O. Gordon owns in excess of 50% of the outstanding voting stock and is the president of Daruma. Mr. Gordon may be deemed to be the beneficial owner of securities held by persons and entities advised by Daruma for purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended; however, Mr. Gordon expressly disclaims that he is, in fact, the beneficial owner of such securities.

(5) Includes 1,854,667 shares subject to options exercisable within 60 days of March 21, 2007.

(6) Includes 53,671 shares subject to options exercisable within 60 days of March 21, 2007.

(7) Includes 123,046 shares subject to options exercisable within 60 days of March 21, 2007.

(8) Includes 10,000 shares held by the Hedrick Children’s Irrevocable Trust DTD 12-26-92. Also includes 53,671 shares subject to options exercisable within 60 days of March 21, 2007.

(9) Includes 27,500 shares subject to options exercisable within 60 days of March 21, 2007.

(10) Includes 124,062 shares subject to options exercisable within 60 days of March 21, 2007.

(11) Includes 64,452 shares subject to options exercisable within 60 days of March 21, 2007.

(12) Includes 411,851 shares subject to options exercisable within 60 days of March 21, 2007.

(13) Includes 87,499 shares subject to options exercisable within 60 days of March 21, 2007.

(14) Includes 40,625 shares subject to options exercisable within 60 days of March 21, 2007.

(15) Includes 257,501 shares subject to options exercisable within 60 days of March 21, 2007.

(16) Includes shares as described in (5) through (15) above, as applicable, and 227,187 shares subject to options exercisable within 60 days of March 21, 2007 held by three officers not required to be named in this table.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended February 3, 2007, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, except as follows: a report of a change in ownership of James McGinty resulting from an exercise of a previously-reported stock option grant was inadvertently filed late.

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DIRECTOR COMPENSATION

The following table sets forth in summary form information concerning the compensation that we paid during the fiscal year ended February 3, 2007 to each of our non-employee directors.

Name	Fees Earned or Paid in Cash ($)	Stock Awards (1) ($)	Option Awards (1) ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	Total ($)
Cynthia Cohen (2)	41,000	24,996	38,514	—	104,510
Corrado Federico (3)	38,500	24,996	38,514	—	102,010
W. Scott Hedrick (4)	37,500	24,996	38,514	—	101,010
Kathleen Mason (5)	34,000	24,996	10,388	—	69,384
Bruce Quinnell (6)	94,500	29,997	51,352	—	175,849
Andrew Schuon (7)	36,500	24,996	38,514	1,091	101,101

(1) Amounts listed in these columns represent the dollar amount we recognized for financial statement reporting purposes during fiscal 2006 under Financial Accounting Standards Board Statement of Financial Accounting Standard No. 123R, or SFAS No. 123R, “Share Based Payment.” Assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements.

(2) The aggregate number of shares subject to Ms. Cohen’s outstanding stock and option awards as of February 3, 2007 was 1,910 and 64,606, respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Ms. Cohen’s awards reported in the Stock Awards and Option Awards columns above is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	25,002
	June 15, 2005	24,990
Option Awards:	June 13, 2006	10,388
	June 12, 2003	28,126

(3) The aggregate number of shares subject to Mr. Federico’s outstanding stock and option awards as of February 3, 2007 was 1,910 and 133,981, respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Mr. Federico’s awards reported in the Stock Awards and Option Awards columns above is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	25,002
	June 15, 2005	24,990
Option Awards:	June 13, 2006	10,388
	June 12, 2003	28,126

(4) The aggregate number of shares subject to Mr. Hedrick’s outstanding stock and option awards as of February 3, 2007 was 1,910 and 64,606, respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Mr. Hedrick’s awards reported in the Stock Awards and Option Awards columns above

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is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	25,002
	June 15, 2005	24,990
Option Awards:	June 13, 2006	10,388
	June 12, 2003	28,126

(5) Ms. Mason is not standing for re-election at the annual meeting. The aggregate number of shares subject to Ms. Mason’s outstanding stock and option awards as of February 3, 2007 was 1,910 and 27,731 respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Ms. Mason’s awards reported in the Stock Awards and Option Awards columns above is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	25,002
	June 15, 2005	24,990
Option Awards:	June 13, 2006	10,388

(6) The aggregate number of shares subject to Mr. Quinnell’s outstanding stock and option awards as of February 3, 2007 was 2,292 and 138,641, respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Mr. Quinnell’s awards reported in the Stock Awards and Option Awards columns above is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	30,002
	June 15, 2005	29,992
Option Awards:	June 13, 2006	13,850
	June 12, 2003	37,501

(7) Mr. Schuon elected to defer $17,000 of the fees earned or paid in cash listed in the column above pursuant to the terms of our Hot Topic Inc. Management Deferred Compensation Plan, or the Deferred Compensation Plan. The aggregate number of shares subject to Mr. Schuon’s outstanding stock and option awards as of February 3, 2007 was 1,910 and 75,387 respectively. The full grant date fair value, as calculated under SFAS No. 123R, of Mr. Schuon’s awards reported in the Stock Awards and Option Awards columns above is as follows (assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements):

	Grant Date	Full Grant Date Fair Value ($)
Stock Awards:	June 13, 2006	25,002
	June 15, 2005	24,990
Option Awards:	June 13, 2006	10,388
	June 12, 2003	28,126

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As consideration for service on the Board, each director is reimbursed for reasonable out-of-pocket expenses in connection with such director’s travel to and attendance at Board and committee meetings. In addition, in fiscal 2006, non-employee directors received a fee for their attendance at each regularly scheduled Board meeting and each meeting of a standing committee of the Board. The Board meeting fee for members other than the Chairman of the Board was $5,000 per meeting and the Board meeting fee for the Chairman of the Board was $7,000 per meeting. Non-employee directors received fees of $1,000 for their attendance at each Compensation Committee and Nominating and Governance Committee meeting, and $1,500 for their attendance at each Audit Committee meeting; provided the Chairs of the Compensation Committee, Nominating and Governance Committee and Audit Committee received fees of $2,500 per committee meeting, and the Chair of the Audit Committee also received a $10,000 quarterly retainer for ongoing activities as Chair. In fiscal 2006, the total cash compensation paid to non-employee directors was $282,000. No changes were made for fiscal 2007 to the director compensation policy with respect to cash compensation to Board members for their service.

Under our director compensation policy approved by the Compensation Committee and the Board, each of our non-employee directors also receives stock option grants, which are granted under our 1996 Non-Employee Directors’ Stock Option Plan, also called the Directors’ Plan, or the 2006 Incentive Plan. Options granted to non-employee directors are intended not to qualify as incentive stock options under relevant tax laws. We expect that the pool of shares available for grant under the Directors’ Plan will be depleted during 2007, and as of and following such time we expect to grant directors stock options only under the 2006 Incentive Plan. In fiscal 2006, pursuant to the director compensation policy, the Board approved grants to each non-employee director of options to purchase that number of shares so that the aggregate option grant to each non-employee director had a total value (determined at the time of grant and using a Black-Scholes valuation model) of $80,000 for the Chairman and $60,000 for each other non-employee director. The grants were all made at the time of our 2006 Annual Meeting of Shareholders.

In all, during the last fiscal year, we granted to our non-employee directors options to purchase an aggregate 64,796 shares of common stock at an exercise price per share of $13.09, all on June 13, 2006. The fair market value (as defined in the applicable stock plan) of such common stock on the date of grant was $13.09 per share. No changes were made for fiscal 2007 to the director compensation policy with respect to stock option compensation to Board members for their service.

In addition, pursuant to our director compensation policy, each non-employee director (other than the Chairman) receives an annual stock grant pursuant to the 2006 Incentive Plan with a value equal to $25,000, and the Chairman receives an annual stock grant pursuant to the 2006 Incentive Plan with a value equal to $30,000. The stock awards are granted to each non-employee director immediately following his or her election or re-election (although the Board can amend its policy and change the grant or otherwise determine that no grant shall be made). The number of shares subject to the stock grant is determined based on the fair market value of our common stock as of the date of grant. Pursuant to the policy adopted by the Board, these stock grants vest 100% on the earlier to occur of the following: (i) one year from the date of grant or (ii) the commencement of our next annual meeting of shareholders, provided that the directors are prohibited from selling the shares they received pursuant to such stock grants until they no longer serve on the Board. Each non-employee director received such a $25,000 stock grant, and the Chairman of the Board received such a $30,000 stock grant, as of the date of our 2006 Annual Meeting of Shareholders held on June 13, 2006. No changes were made for fiscal 2007 to the director compensation policy with respect to stock awards to Board members for their service.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overall Compensation Philosophy

Our Compensation Committee is comprised of independent directors within the meaning of applicable Securities and Exchange Commission and Nasdaq Stock Market rules. The Compensation Committee responsibilities and duties are outlined in detail under the heading “Information Regarding the Board of Directors and its Committees—Compensation Committee” and in our Compensation Committee charter, which is available on our investor relations website at http://investorrelations.hottopic.com.

Our Compensation Committee believes that our compensation program must support our company business and financial goals and be competitive with other companies who seek the services of similarly qualified candidates. Underlying the program is a fundamental goal of providing both appropriate rewards for outstanding company performance and clear financial consequences for underperformance. With respect to executive officers, the Compensation Committee also believes a significant portion of an executive’s compensation should be “at risk” in the form of annual and long-term incentive awards that are paid, if at all, if specific objectives are satisfied.

In general, our executive compensation program has been designed to:

• Attract and retain highly skilled and experienced professionals by establishing a compensation structure that is competitive with those offered by other companies with whom we compete for management talent;

• Build shareholder value by providing incentives based on achievement of company financial goals;

• Closely align compensation for our executive management team with our short-term and long-term performance;

• Establish compensation programs that are equitable internally within our company; and

• Provide differentiated compensation based on individual performance and contribution to company objectives.

In recent years, elements of the company’s compensation programs have shifted in emphasis, with more reliance on performance-based annual bonus and long-term incentive awards. This has been accomplished by maintaining base salary levels and by providing varied long-term incentives through the implementation of our Performance Share Award Programs. The decision to adjust the program took into account evolving practices at other public companies, as well as an objective to enhance the linkage between employee compensation and the creation of shareholder value. In addition, because we now operate two retail divisions, we have adjusted our bonus plans to provide that executive officers who work specifically for either Hot Topic or Torrid have bonus goals and objectives based on the financial performance of the relevant division, while potential bonuses for other members of executive management are weighted to encourage focus on the financial success of both divisions.

During fiscal 2005, the Compensation Committee retained Mercer Human Resource Consulting, an independent compensation consultant, to provide input and advice to the Compensation Committee relating to our long-term incentive strategy for our executive team. Mercer provided a written report to the Compensation Committee in November 2005, and provided further input and advice as the Compensation Committee continued its consideration of appropriate executive compensation.

The input of Mercer served as a factor in the Compensation Committee’s conclusions with respect to setting fiscal 2006 executive compensation figures and programs, and in certain areas provided guidance for

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establishing fiscal 2007 executive compensation parameters. In addition, to aid the Compensation Committee in performing its duties, our Chief Executive Officer provides recommendations concerning the compensation of executive officers, excluding herself; and also provides the Compensation Committee with analysis of annual corporate goal achievement and named executive officer performance. While the Compensation Committee utilizes compensation survey data that includes retail and other relevant industries’ companies, as considered comparable or relevant to Hot Topic, the Compensation Committee does not use a specific formula to set pay in relation to this market data. In aggregate, the compensation program for executive officers has not been materially changed for fiscal 2007 as compared to fiscal 2006 in terms of structure and philosophy.

Elements of Compensation

To accomplish our executive compensation program objectives, compensation for our executive officers generally consists of the following components: base salary, bonus and long-term incentives. Our executive officers are also provided an opportunity to participate in the Deferred Compensation Plan. They also receive an allowance for lease of a vehicle, and are entitled to potential payments upon specified termination or change-in-control events. Additionally, our executive officers are entitled to other benefits that are generally available to our employees.

Base Salary

Base salaries are used to attract and retain employees by providing a portion of compensation that is not considered “at risk.” The initial base salary for each executive officer was established at the time of hire taking into account the officer’s scope of responsibilities, qualifications, experience, competitive salary information and internal equity. The Compensation Committee generally reviews base salaries for our named executive officers (which term is defined in our Summary of Compensation, below) and other senior executives annually during the first quarter of the fiscal year following the audit of our year-end financial statements. Base salaries for ensuing years are determined based on an assessment of the executive’s performance against job responsibilities, overall company performance and competitive salary information. Annual adjustments in base salaries, if any, have generally been made effective at the beginning of the third month of the fiscal year for which they are intended to apply and therefore also reflect in large part the prior year’s business and individual performance achievements. Thus, the Compensation Committee has been able to consider both an executive’s exhibited value to the organization and its business, as well as his or her anticipated contributions to the success (both short-term and long-term) of the company for purposes of setting base pay levels.

During fiscal 2006, the base salaries established for our executive officers were intended to be competitive with salaries of similar executive positions in comparable companies in our industry. Given our financial performance in fiscal 2005, base salaries established in early 2006 for executive officers remained the same as they had been at the end of fiscal 2005. During fiscal 2006, the salaries of certain executive officers were increased in recognition of promotions and demonstrated positive contributions to the financial success of our company. Fiscal 2006 base salary information for our named executive officers is detailed in the Summary Compensation Table.

The Compensation Committee met in March 2007 to consider the base salaries of our executive officers for fiscal 2007. Based on a number of criteria, including the company’s performance in fiscal 2006, the Compensation Committee approved the following base salaries for our named executive officers for fiscal 2007:

Named Executive Officer	Title	Base Salary ($)
Elizabeth McLaughlin	Chief Executive Officer and Director	700,000
Gerald Cook	President, Hot Topic, Inc.	450,000
Christopher Daniel	President, Torrid	425,000
Maria Comfort	Chief Merchandising Officer, Hot Topic	400,000
James McGinty	Chief Financial Officer	350,000

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Bonus

Annual incentive bonuses are intended to reflect the Compensation Committee’s belief that a significant portion of the annual compensation of each executive officer should be contingent upon our performance and officer contribution to that performance. Accordingly, our executive officers, including our Chief Executive Officer, participate in an annual executive incentive bonus plan, referred to as the Executive Bonus Plan, which provides for cash bonus targets based upon the achievement of certain specified financial goals for the fiscal year. The Compensation Committee annually establishes targeted profitability levels for the ensuing fiscal year in conjunction with our annual financial plan. Upon the achievement of various increasing levels of profitability above the minimum target level, varying amounts are awardable; however the Compensation Committee may choose to increase bonuses provided for under the Executive Bonus Plan above the original bonus targets, or to recommend awarding less than the target bonuses, or no bonuses. The Board of Directors, upon receiving the Compensation Committee’s recommendations, makes awards as warranted. The various goals attributable to particular executive officers are varied to align the officer’s duties with the appropriate metrics that best reflect the officer’s impact on Hot Topic and our performance and are collectively designed to be “stretch goals,” intended to be challenging but attainable.

Cash bonuses earned under the Executive Bonus Plan are paid each year upon completion of our annual audit of the results of operations for the previous fiscal year by our independent auditors.

Among our executive officers, Christopher Daniel, our President, Torrid, is eligible for a bonus based on financial performance of our Torrid division, while Maria Comfort, our Chief Merchandising Officer, Hot Topic, is eligible for a bonus based on financial performance of our Hot Topic division. Objectives for the remaining executive officers are based on financial performance of both divisions, such that the majority of their potential bonus is based on Hot Topic performance, and the remainder on Torrid performance.

In fiscal 2006, bonuses were not awarded for fiscal 2005 under the Executive Bonus Plan because the targeted profitability levels were not reached. In fiscal 2007, certain of our executive officers and named executive officers received bonuses for fiscal 2006, because targets with respect to our Torrid division were exceeded. The table below shows cash bonuses paid to our named executive officers for fiscal 2006:

Named Executive Officer	Title	Cash Bonus ($)
Gerald Cook	President, Hot Topic, Inc.	155,925
Christopher Daniel	President, Torrid	408,000
James McGinty	Chief Financial Officer	80,850

(1) Named executive officers not listed in the table above were awarded no bonus for fiscal 2006.

Long-Term Incentives

We provide long-term incentive compensation to our executive officers through equity awards under our 2006 Equity Incentive Plan, or 2006 Incentive Plan. The 2006 Incentive Plan succeeded our 1996 Equity Incentive Plan, which was used for equity grants from 1996 until its expiration in 2006. The 2006 Incentive Plan was established to provide incentives to our directors, employees, including executive officers, and consultants to perform and execute on our long-term objectives and strategic initiatives. We believe awards granted under our 2006 Incentive Plan help align the interests of our employees with those of our shareholders. The Compensation Committee typically considers both the number of shares subject to proposed awards, as well as the valuation of proposed awards under the valuation method used by the company for purposes of reporting expense associated with the awards.

Stock Options

Our 2006 Incentive Plan authorizes us to grant stock options to employees, consultants and directors. Prior to fiscal 2005, we issued primarily incentive stock options, but beginning in fiscal 2005 we have granted

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nonqualified stock options exclusively. With respect to executive officers, stock options are typically granted and effective upon commencement of employment and on an annual basis in connection with our performance evaluation process which typically occurs in the first quarter of each calendar year. The Compensation Committee has on occasion also made grants in connection with promotions. All equity-based awards to executive officers require the approval of our Board or the Compensation Committee before they are awarded or communicated to the individual.

Stock options are priced at the fair market value of our common stock on the date of grant of the award. In fiscal 2006, fair market value under the 2006 Incentive Plan was defined as the closing price of our common stock on the trading day immediately prior to the grant date of the award. In March 2007, in accordance with what we believe is evolving best practice, our Board of Directors amended the 2006 Incentive Plan and our other stock plans to define fair market value as the closing price of our common stock on the date of grant (or if the date of grant is not a trading day, then the closing price on the trading day immediately prior to the date of grant).

Generally, 25% of the shares subject to the stock options vest one year from the effective date of grant and the remainder of the shares vest in equal monthly installments over the 36 months thereafter, subject to acceleration of vesting in certain situations such as in some circumstances in connection with a change of control of the company. We have not and currently do not grant options with performance based vesting conditions. The stock options expire ten years from the effective date of grant.

Stock option grants made during 2006 to our named executive officers are reflected in the Grants of Plan-Based Awards Table and outstanding stock option awards to our named executive officers as of February 3, 2007 are reflected in the Outstanding Equity Awards at Fiscal Year-End Table. In connection with our annual performance evaluation process, and based on the compensation analysis described above, in March 2007 the Board, based on the recommendation of the Compensation Committee, approved 2007 annual stock option grants to our named executive officers as follows, each with an exercise price of $11.31 per share:

Named Executive Officer	Title	Stock Option Grant (# shares)
Elizabeth McLaughlin	Chief Executive Officer and Director	200,000
Gerald Cook	President, Hot Topic, Inc.	78,000
Christopher Daniel	President, Torrid	100,000
Maria Comfort	Chief Merchandising Officer, Hot Topic	60,000
James McGinty	Chief Financial Officer	75,000

Performance Share Awards

Beginning in 2006, the Compensation Committee implemented a long-term incentive structure to incorporate, in addition to stock options, stock award “units” pursuant to which shares of our common stock will be issued to executive officers in the event long-term operating income goals are met. The purpose of this type of award is, among other things, to provide for diversification of equity grants to provide aggregate awards that, in the opinion of the Board, appropriately align long-term incentives of company management with our significant long-term objectives. In 2006, we granted such awards pursuant to a Performance Share Award Program adopted under our 1996 Equity Incentive Plan. In March 2007, the Board adopted a Performance Share Award Program under the 2006 Incentive Plan substantially similar to the Performance Share Award Program adopted in 2006. The stock awards granted have target awards that are 50% of the maximum awards indicated below. The target awards and the maximum awards may be earned based on achievement of enumerated performance goals during an established performance period, and in all cases the award of shares is subject to the officer’s continuous service to us as an officer, director or consultant. The shares will remain unissued until earned, if at all. The awards granted in 2007 under the new Performance Share Award Program provide for a three-year measurement period, with awards based on 2009 operating income for the company as a whole, compared to a target goal (with

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potential adjustment due to extraordinary or nonrecurring events such as significant acquisitions). The following table shows the 2007 stock awards to our named executive officers:

Named Executive Officer	Title	Maximum Shares Subject to Stock Award (#)
Elizabeth McLaughlin	Chief Executive Officer and Director	260,000
Gerald Cook	President, Hot Topic, Inc.	66,000
Christopher Daniel	President, Torrid	84,000
Maria Comfort	Chief Merchandising Officer, Hot Topic	52,000
James McGinty	Chief Financial Officer	64,000

Employee Stock Purchase Plan

We have also established our 1996 Employee Stock Purchase Plan, or ESPP, which is available to and intended to encourage and motivate all of our employees, including our executive officers, to continue in our employ by giving them the opportunity to acquire an ownership interest in the company on favorable terms. Under our ESPP, employees may purchase shares of our common stock at a discount to the market price, subject to certain limits, with the objective of allowing employees to profit when the value of our common stock increases over time.

Deferred Compensation Plan

In August 2006, we adopted the Deferred Compensation Plan. The purpose of the Deferred Compensation Plan is to provide a program to meet the financial planning needs of our highly compensated employees and members of our Board of Directors who are unable to participate in our section 401(k) savings/retirement plan due to applicable rules. The company does not currently contribute to the Deferred Compensation Plan. As of February 3, 2007, each of our named executive officers had participated in the Deferred Compensation Plan. Information about participation and amounts earned on contributed amounts is set forth in the Nonqualified Deferred Compensation Table.

Severance and Change of Control Payments

We have entered into agreements containing severance benefits and change of control provisions with certain of our executive officers, the terms of which are described under the headings “Employment, Severance and Change of Control Agreements” and “Potential Payments Upon Termination or Change of Control.” We believe these severance and change in control benefits are an essential element of our executive compensation package and assist us in recruiting and retaining talented individuals.

Other Compensation

We lease a fleet of automobiles for certain employees of our company, such as district and regional managers, and our officers; and to the extent attributed to personal use the costs associated with lease are deemed compensation to the employees. Further, in order to retain and recruit highly talented individuals we provide other forms of compensation from time to time such as supplemental disability insurance coverage, a section 401(k) savings/retirement plan, relocation benefits, hiring bonuses and related tax gross ups. We also provide personal paid time off and other paid holidays to all employees, including our executive officers, on terms which we believe are comparable to those provided at comparable companies.

Section 162(m) Compliance

Section 162(m) of the Internal Revenue Code limits us to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain executive officers in a taxable year. Compensation above $1 million may be deducted if it is “performance-based compensation” within the meaning of the Internal Revenue Code.

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The Compensation Committee has determined that awards under the Performance Share Award Program and stock options granted under the 2006 Incentive Plan with an exercise price at least equal to the fair market value of our common stock on the date of grant shall be treated as “performance-based compensation.” The Compensation Committee currently believes that we should be able to continue to manage our executive compensation program for named executive officers so as to preserve the related federal income tax deductions, although individual exceptions may occur.

Summary of Compensation

The following table sets forth in summary form information concerning the compensation that we paid during the fiscal year ended February 3, 2007 to our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers who earned more than $100,000 in fiscal 2006. We refer to these officers in this proxy statement as the “named executive officers.”

Summary Compensation Table (1)

Name and Principal Position	Year	Salary (2) ($)	Option Awards (3) ($)	Non Equity Incentive Plan Compensation (4) ($)	Change in Nonqualified Deferred Compensation Earnings ($)	Total ($)
Elizabeth McLaughlin, Chief Executive Officer and Director	2006	700,000	1,057,593	—	2,041	1,759,634
Gerald Cook, President, Hot Topic, Inc.	2006	450,000	237,046	155,925	531	843,501
Christopher Daniel, President, Torrid	2006	337,917	170,526	408,000	852	917,295
Maria Comfort, Chief Merchandising Officer, Hot Topic	2006	400,000	186,421	—	—	586,421
James McGinty, Chief Financial Officer	2006	304,167	163,912	80,850	401	549,330

(1) In accordance with the rules of the SEC, the compensation described in this table does not include various perquisites and other benefits received by a named executive officer which do not exceed $10,000 in the aggregate.

(2) Salary amounts deferred under the Deferred Compensation Plan are included in this column and shown in the Nonqualified Deferred Compensation Plan Table.

(3) Amounts listed in this column represent the dollar amount we recognized for financial statement reporting purposes during fiscal 2006 under SFAS No. 123R. Assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements.

(4) Amounts listed in this column represent performance-based bonuses earned during the fiscal year ended February 3, 2007. Annual bonuses earned during a fiscal year are paid in the first quarter of the subsequent fiscal year.

Employment, Severance and Change of Control Agreements

We entered into agreements with Gerald Cook on January 12, 2001, James McGinty on January 23, 2003, Maria Comfort on July 11, 2005 and Christopher Daniel on November 15, 2006, which provide for payments and benefits under certain circumstances. None of these agreements provide for a specified term of employment.

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Under all of the above agreements, each executive officer’s employment is terminable with or without cause. However, each of the executive officers is entitled to certain benefits in the event his or her employment with us is terminated without cause, including a severance payment equal to six months of continued pay and health benefits.

In addition, each of the executive officers is entitled to immediate vesting of all of their unvested options in the event of a “change in control” of Hot Topic. “Change in control” is defined in each of the agreements as (i) a sale of all or substantially all of our assets, (ii) a merger or consolidation in which we are not the surviving corporation and in which beneficial ownership of at least 50% of our voting securities has changed or (iii) an acquisition by an person, entity or group of beneficial ownership of at least 50% of the combined voting power of us.

In establishing the triggering events for payment obligations in connection with termination events under our employment and change of control agreements with our named executive officers, the Compensation Committee considered several factors. Payments upon termination by us without cause are provided because we consider such a termination to be generally beyond the control of a terminated employee and a termination that under different circumstances would not have occurred. The termination benefits are intended to ease the consequences to an employee of an unexpected termination of employment. We benefit by requiring a general release from terminated employees. Option acceleration upon a change of control is intended to mitigate the distraction and loss of key management personnel that may occur in connection with rumored or actual fundamental corporate changes. Such acceleration protects shareholder interests by enhancing employee focus during rumored or actual change in control activity through incentives to remain with Hot Topic despite uncertainties while a transaction is under consideration or pending.

We have no existing employment agreement with our Chief Executive Officer, Elizabeth McLaughlin. Ms. McLaughlin’s compensation is determined annually by the Compensation Committee, as described elsewhere in this proxy statement.

Potential Payments Upon Termination or Change of Control

The following table sets forth potential payments payable to named executive officers upon termination of employment without cause, as discussed above. The Compensation Committee or Board may in its discretion revise, amend or add to the benefits if it deems advisable. The table below reflects amounts payable to our named executive officers assuming their employment was terminated without cause on February 3, 2007, other than accrued but unpaid base salary and any benefits payable or provided under broad-based employee benefit plans and programs. We would not be obligated to provide any other severance payments, health or welfare benefits or tax gross-ups to the officers.

Name	Benefit	Termination Without Cause (1) ($)
Gerald Cook	Cash Severance	225,000
	Benefits Continuation	2,480
Christopher Daniel	Cash Severance	212,500
	Benefits Continuation	2,508
Maria Comfort	Cash Severance	200,000
	Benefits Continuation	2,480
James McGinty	Cash Severance	175,000
	Benefits Continuation	2,480

(1) The amounts reflected in the column would be paid over a six-month period. In addition, deferred compensation of each named executive officer, if any, reflected in the Nonqualified Deferred Compensation Plan Table would be paid upon termination.

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The table below reflects the calculation of the aggregate dollar values related to acceleration of vesting of the stock options held by named executive officers in the event of a change in control. The stock option value is calculated by multiplying the number of unvested, in-the-money shares by the difference between the grant price and the closing stock price on February 2, 2007 (the last trading day of fiscal 2006).

Name	Benefit	Change in Control (1) ($)
Gerald Cook	Acceleration of Unvested Stock Options	3,217
Christopher Daniel	Acceleration of Unvested Stock Options	0
Maria Comfort	Acceleration of Unvested Stock Options	0
James McGinty	Acceleration of Unvested Stock Options	17,575

(1) Does not take into account stock options that were out-of-the-money as of February 2, 2007.

Grants of Plan-Based Awards

We previously granted stock options to our executive officers under our 1996 Equity Incentive Plan, or the 1996 Incentive Plan, and currently grant stock options to our executive officers under the 2006 Incentive Plan. As of March 21, 2007, options to purchase a total of 5,239,178 and 180,000 shares were outstanding under the 1996 Incentive Plan and 2006 Incentive Plan, respectively, and a total of 3,208,044 shares remained available for grant under the 2006 Incentive Plan. The options become exercisable over a four year period with 25% vesting one year from the date of grant and 6.25% of the remaining shares vesting quarterly thereafter. The options will fully vest upon a change of control, as defined in the 1996 Incentive Plan or the 2006 Incentive Plan, as applicable, unless the acquiring company assumes the options or substitutes similar options.

Options expire ten years from the date of grant. The exercise price per share of each option granted to our executive officers was equal to the fair market value of our common stock on the date of the grant. The exercise price per share of each option previously granted to our named executive officers under the 1996 Incentive Plan and the 2006 Incentive Plan was equal to the fair market value of our common stock on the date of the grant, which was deemed to be equal to the closing sales price for such stock as reported on the Nasdaq on the last market trading day prior to such date. In March 2007, we amended the 2006 Incentive Plan to provide that the fair market value of our common stock on the date of the grant will be deemed to be equal to the closing sales price for such stock as reported on the Nasdaq on such date.

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The following table provides information regarding grants of plan-based awards to the named executive officers in the fiscal year ended February 3, 2007.

Name	Grant Date	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)			Estimated Future Payouts Under Equity Incentive Plan Awards (2)			All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)	Grant Date Closing Price (3) ($/Sh)	Grant Date Fair Value of Stock and Option Awards (4) ($)
		Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
Elizabeth	3/17/06	132,300	700,000	2,100,000
McLaughlin	3/17/06				0	107,000	214,000				1,487,300
	3/17/06							200,000	13.90	13.77	1,340,620
Gerald Cook	3/17/06	63,788	337,500	1,012,500
	3/17/06				0	28,000	56,000				389,200
	3/17/06							50,000	13.90	13.77	335,155
Christopher	3/17/06	15,938	318,750	637,500
Daniel	3/17/06				0	14,000	28,000				194,600
	3/17/06							25,000	13.90	13.77	167,578
	11/15/06							100,000	10.87	11.11	514,390
Maria Comfort	3/17/06	38,000	200,000	400,000
	3/17/06				0	28,000	56,000				389,200
	3/17/06							50,000	13.90	13.77	335,155
James McGinty	3/17/06	33,075	175,000	525,000
	3/17/06				0	26,000	52,000				361,400
	3/17/06							45,000	13.90	13.77	301,640

(1) The amounts shown in these columns represent the threshold, target and maximum payout levels under the Executive Bonus Plan. The actual amount of incentive bonus earned by each named executive officer in fiscal 2006 is reported under the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.

(2) The amounts shown in these columns represent the threshold, target and maximum payout levels under the Performance Share Award Program. None of these awards have vested and no shares have been issued pursuant to the grants. As of February 3, 2007, it is our best estimate that none of the awards will be earned at the end of their three-year term. Accordingly, for fiscal 2006, net, we did not recognize any compensation expense for these awards, so no amounts are reflected in the Summary Compensation Table for the awards. For further discussion, see our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements.

(3) In fiscal 2006, fair market value under the 2006 Incentive Plan was defined as the closing price of our common stock on the trading day immediately prior to the grant date of the award. In March 2007, in accordance with what we believe is evolving best practice, our Board of Directors amended the 2006 Incentive Plan and our other stock plans to define fair market value as the closing price of our common stock on the date of grant (or if the date of grant is not a trading day, then the closing price on the trading day immediately prior to the date of grant).

(4) Amounts listed in this column represent the aggregate grant date fair value computed in accordance with SFAS No. 123R. Assumptions made for the purpose of computing these amounts are discussed in our Annual Report on Form 10-K for the year ended February 3, 2007 in Note 2 to Consolidated Financial Statements.

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Outstanding Equity Awards at Fiscal Year-End

The following table provides information regarding all outstanding equity awards held by each of the named executive officers as of February 3, 2007.

	Option Awards (1)				Stock Awards (2)
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Elizabeth McLaughlin	80,000	—	2.41	5/27/08	214,000	2,287,660
	95,000	—	1.51	2/23/09
	200,733	—	3.73	2/24/10
	4,949	—	5.97	6/28/10
	133,380	—	6.97	8/22/10
	215,603	—	10.64	2/5/11
	300,001	—	15.33	3/20/12
	281,250	18,751	15.61	3/20/13
	300,000	—	25.51	3/18/14
	175,000	—	21.24	3/18/15
	—	200,000	13.90	3/17/16
Gerald Cook	64,350	—	10.64	2/5/11	56,000	598,640
	75,000	—	15.33	3/22/12
	70,313	4,688	15.61	3/20/13
	100,000	—	25.51	3/18/14
	85,000	—	21.24	3/18/15
	—	50,000	13.90	3/17/16
Christopher Daniel	28,124	21,876	17.19	10/4/14	28,000	299,320
	50,000	—	21.24	3/18/15
	—	25,000	13.90	3/17/16
	—	100,000	10.87	11/15/16
Maria Comfort	23,437	51,563	14.12	8/22/15	56,000	598,640
	—	50,000	13.90	3/17/16
James McGinty	45,000	—	15.33	3/20/12	52,000	555,880
	46,250	—	10.31	3/6/11
	42,188	2,813	15.61	3/20/13
	50,000	—	25.51	3/18/14
	60,000	—	21.24	3/18/15
	—	45,000	13.90	3/17/16

(1) The options become exercisable over a four year period with 25% vesting one year from the date of grant and 6.25% of the remaining shares vesting quarterly thereafter.

(2) The stock awards are earned based on achievement of enumerated performance goals during an established performance period, and in all cases the award of shares is subject to the officer’s continuous service to us as an officer, director or consultant. The shares will remain unissued until earned, if at all. The value of unearned shares is based upon the closing stock price of our common stock on February 2, 2007 (the last trading day of fiscal 2006).

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Option Exercises

The following table provides information regarding the number of shares of common stock acquired and the value realized pursuant to the exercise of stock options and the value realized pursuant to the exercise of stock options, during fiscal 2006 by each of the named executive officers, to the extent applicable.

	Option Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise (1) ($)
Elizabeth McLaughlin	19,750	249,640
	536	4,384
	9,398	32,987
James McGinty	2,500	15,700
	10,000	29,400

(1) The value realized on exercise is equal to the difference between the option exercise price and the closing price of our common stock on the date of exercise, multiplied by the number of shares subject to the option, without taking into account any taxes that may be payable in connection with the transaction. In each case above, the executive officer exercised the options, but did not sell the shares acquired and continues to hold such shares.

Pension Benefits

We have no pension plans or long-term incentive plans.

Nonqualified Deferred Compensation Plan

The following table shows for the fiscal year ended February 3, 2007 certain information regarding nonqualified deferred compensation plans for the named executive officers, to the extent applicable.

Name	Executive Contributions in Last FY (1) ($)	Aggregate Earnings in Last FY (2) ($)	Aggregate Withdrawals/ Distributions (3) ($)	Aggregate Balance at Last FYE ($)
Elizabeth McLaughlin	48,462	2,041	—	50,503
Gerald Cook	8,308	531	—	8,838
Christopher Daniel	6,569	852	—	17,421
James McGinty	7,356	401	—	7,757

(1) The contribution amounts contained in this column are reported in the Summary Compensation Table as salary compensation.

(2) The aggregate earnings amounts contained in this column are reported in the Summary Compensation Table as “Change in Nonqualified Deferred Compensation Earnings.”

(3) None of the named executive officers received distributions from their deferred compensation accounts in 2006.

The Deferred Compensation Plan is an unfunded plan designed for the purpose of providing an opportunity to defer compensation to our highly compensated employees including our named executive officers, as well as our directors. The Deferred Compensation Plan allows participants to elect on an annual basis to defer receipt of portions of their salary and/or cash bonus into bookkeeping accounts with phantom investment alternatives that mirror the gains and/or losses of several different investment funds. The bookkeeping accounts are adjusted to reflect investment results resulting from fluctuations in the market value of the phantom investments. Participants may change their selected phantom investment alternatives at any time. The amounts reported in the aggregate earnings column above reflect any unrealized gains and losses, based on the increases or decreases in market value of investment funds for fiscal 2006 and realized gains, which represents interest earned during fiscal 2006 on deferred compensation. Participants are 100% vested in all amounts deferred, and any earnings on such deferral.

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Under the terms of the Deferred Compensation Plan, in 2006 executive participants were permitted to defer up to 80% of their salary and up to 100% of their annual cash bonus while directors were permitted to defer up to 100% cash fee. Elections must be made by July 31 of each year to defer salary compensation that will be earned during the following year, and are irrevocable after that date. Elections to defer bonus compensation must be made no later than six months prior to the end of fiscal year, which is the applicable performance period to which the bonus relates, in accordance with applicable tax compliance requirements.

Executive participants may elect to receive a distribution of their account balance either in a lump sum or annual installments of up to 15 years, and may elect to commence payment either upon termination of employment, or a date specified by the executive at the time of initial deferral. Executives may also elect at the time of deferral to receive payment of their account balance in the event of a change of control of the company. Any changes in the executive’s distribution election are permitted only if made in accordance with applicable tax compliance requirements governing nonqualified deferred compensation plans. Any payments made to executives upon termination of employment will be delayed six months except in the event of disability, death or, possibly, a change in control of Hot Topic. Notwithstanding the executive’s election, for distributions made upon a termination of employment, annual installment payments are permitted under the plan only if at the time of termination the executive has 5 years of service with the company and an account balance of $50,000 or more, or the termination is due to the executive’s death or disability. Executives may be entitled to receive earlier payments of their account balances through certain unforeseeable financial emergency/hardship withdrawals.

Amounts deferred by the executives are not subject to income tax until payment, but are subject to the Federal Insurance Contributions Act tax at the time of deferral. We are not required to make any contributions to the Deferred Compensation Plan, nor do we fund the plan. Participants have an unsecured contractual commitment by the company to pay the amount due under the plan. When such payments are due, cash will be distributed from our general assets. We have established a non-qualified grantor trust to hold amounts deferred under the plan. These amounts are considered general assets of Hot Topic and are available to creditors in the event of Hot Topic’s insolvency.

Equity Compensation Plan Information

The following table provides certain information as of February 3, 2007 with respect to all of our equity compensation plans in effect on that date.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by shareholders (1)	5,925,355	15.57	4,287,393
Equity compensation plans not approved by shareholders (2)	30,000	2.22	not applicable
Total	5,955,355	15.50	4,287,393

(1) Includes the 2006 Incentive Plan, the 1996 Incentive Plan, the Directors’ Plan and the ESPP. 1,086,960 shares under column (c) are attributable to the ESPP.

(2) Includes non-plan option grants approved by the Board and granted pursuant to individual compensation arrangements prior to the last fiscal year. The terms of such non-plan option grants are substantially similar to the terms of stock options granted under the 1996 Incentive Plan, the material features of which are contained in Note 2 to the Notes to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended February 3, 2007.

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POLICIES AND PROCEDURES WITH RESPECT TO RELATED PARTY TRANSACTIONS

Our Board of Directors is committed to upholding the highest legal and ethical conduct in fulfilling its responsibilities and recognizes that related party transactions can present a heightened risk of potential or actual conflicts of interest. Accordingly, as a general matter, it is Hot Topic’s preference to avoid related party transactions.

Our Audit Committee Charter requires that members of the Audit Committee, all of whom are independent directors, review and approve all related party transactions for which such approval is required under applicable law, including SEC rules and Nasdaq listing standards. A related party transaction includes any transaction, arrangement or relationship involving an amount that exceeds $120,000 in which Hot Topic is a participant and in which any of the following persons has or will have a direct or indirect interest: any executive officer, director, or more than 5% stockholder of Hot Topic, including any of their immediate family members, and any entity owned or controlled by such persons.

In addition, the Audit Committee is responsible for reviewing and investigating any matters pertaining to the integrity of management, including conflicts of interest and adherence to our Standards of Business Ethics. Under our Standards of Business Ethics, directors, officers and all other members of the workforce are expected to avoid any relationship, influence or activity that would cause or even appear to cause a conflict of interest.

CERTAIN TRANSACTIONS

We have entered into indemnity agreements with certain officers and directors which provide, among other things, that we will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of us, and otherwise to the fullest extent permitted under California law and our Bylaws. We have also entered into and may in the future enter into employment agreements with certain of our executive officers. See “Employment and Change of Control Agreements.”

HOUSEHOLDING OF PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers, banks and other agents) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies.

This year, a number of brokers, banks or other agents with account holders who are shareholders of Hot Topic will be “householding” our proxy materials. A single proxy statement will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker, bank or other agent that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, bank or other agent, and direct a written request for the separate proxy statement and annual report to Corporate Secretary, Hot Topic, Inc., 18305 E. San Jose Avenue, City of Industry, California 91748 or contact Christopher J. Kearns at (626) 839-4681. Shareholders whose shares are held by their broker, bank or other agent as nominee and who currently receive multiple copies of the proxy statement at their address that would like to request “householding” of their communications should contact their broker, bank or other agent.

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OTHER MATTERS

Our Board of Directors knows of no other matters that will be presented for consideration at the annual meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

Christopher J. Kearns

Secretary

City of Industry, California

May 4, 2007

A copy of our Annual Report on Form 10-K for the fiscal year ended February 3, 2007 filed with the SEC is available without charge upon written request to: Corporate Secretary, Hot Topic, Inc., 18305 E. San Jose Avenue, City of Industry, California 91748.

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HOT TOPIC, INC.

ANNUAL MEETING OF SHAREHOLDERS

June 14, 2007

8:30 a.m.

18305 E. San Jose Avenue City of Industry, CA 91748

Hot Topic, Inc.

18305 E. San Jose Avenue

City of Industry, CA 91748 proxy

This proxy is solicited by the Board of Directors for use at the Annual Meeting of Shareholders of Hot Topic, Inc. (the “Company”) on June 14, 2007.

The shares of stock you hold in your account or in a dividend reinvestment account will be voted as you specify below.

Unless otherwise marked, this proxy will be voted “FOR” the election of the nominees listed in Proposal 1 and “FOR” Proposal 2, as more specifically described in the proxy statement. If specific instructions are indicated, this proxy will be voted in accordance therewith.

By signing the proxy, you revoke all prior proxies and appoint James McGinty and Christopher J. Kearns, and each of them, as attorneys and proxies of the undersigned with full power of substitution, to vote the undersigned’s shares on the matters shown on the reverse side, and at any and all continuations, adjournments or postponements thereof with all powers that the undersigned would possess if personally present, upon in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the Annual Meeting of Shareholders of the Company.

See reverse for voting instructions.

Please detach here

The Board of Directors Recommends a Vote FOR Items 1 and 2.

1. To elect directors to hold office until the Company’s 2008 Annual Meeting of Shareholders. NOMINEES – 01 Cynthia Cohen

02 Corrado Federico

03 W. Scot Hedrick

04 Eli zabeth McLaughlin

05 Bruce Quinnel

06 Andre w Schuon

Vote FOR all Nominees (except as marked)

Vote WITHHELD from all Nominees

(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the box provided to the right.)

2. To ratify the selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending February 2, 2008.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.

Address Change? Mark Box Indicate Changes below

Dated:

, 2007

Name of Shareholder:

Signatuer(s) in Box

Note : Please sign exactly as your name(s) appear on Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include their title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy.